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Inflation Remains in Check

Inflation Remains in Check

September 30, 2009--Last week's retail sales and new residential construction reports were both upbeat. Inflation remains contained in the short-term.



Retail Sales

Retail sales surged 2.7% in August after decreasing 0.2% in July. It was the largest jump since January 2006. The government's "Cash for Clunkers" program contributed to the increase, with motor vehicle and parts sales up 10.6%. Rising fuel costs drove an increase in sales at gasoline stations, which were up 5.1%. Beyond auto related industries, sales were stronger than expected. The back to school season helped boost clothing store sales 2.4%. Furniture stores (-1.6%) and building material dealers (-1.2%) were the only segments to experience a decline in sales. Core retail sales, excluding autos, gasoline, and building materials, increased 0.6%. On a year-to-year basis, top-line retail sales decreased 5.3%, while core sales are down 1.7%. It remains to be seen whether August's positive report is part of a new trend, or simply an anomaly due to the convergence of the Cash for Clunkers Program and back to school shopping.

New Residential Construction

Housing starts in August were at a seasonally adjusted annual rate of 598,000. This is 1.5% above the revised July estimate of 589,000, but 29.6% below the August 2008 figure. The gain came from multi-family housing, which increased to 115,000 from 84,000 in July. Single-family housing starts in August were 3.0% lower than in July. Permits for new housing increased, to 579,000 from 564,000 in July. With low mortgage rates, an $8,000 tax credit available to first-time home buyers, and new, lower-priced homes offered by builders, buyers will slowly begin to reenter the market. While the worst is behind us, we are unlikely to see any significant upturn until at least the early part of next year, when the general economy picks up some momentum.

Consumer Price Index

The Consumer Price Index (CPI) increased 0.4% in August after holding steady in July. The price index for energy jumped 4.6%, but prices remain below the highs of mid-2008. Food prices rose 0.1% and core prices, excluding food and energy, increased 0.1%. On a year-ago basis, the top-line CPI decreased 1.5% while the core CPI declined slightly to 1.4%. Inflation remains in check as consumers and businesses have pulled back on spending because of the recession.

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