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Falling Inflation, Retail Sales Bolster Fed’s Go-Slow Approach

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Consumer Prices
  • Falling Inflation, Retail Sales Bolster Fed’s Go-Slow Approach

The economic case for a Federal Reserve interest-rate increase in June just became a little less solid.

Inflation took a surprising step back in March at the same time retail sales dropped for a second month, according to a pair of U.S. government reports on Friday. Labor Department data showed the consumer-price index fell a larger-than-forecast 0.3 percent, while a measure excluding food and energy fell by the most since 1982.

While the pullback at retailers underscores a weak first quarter for consumer spending that economists had already penciled in, the inflation data are what surprised them given recent signs that businesses had been able to regain pricing power. A further cooling of price pressures and modest household demand would raise questions about whether the economy could withstand a mid-year move by the Fed to lift borrowing costs.

“Both reports would be arguments in a case that a dove would make for why the Fed needs to be more patient,” said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC. “It’s a relatively soft consumer performance in the first quarter, and you couple that with a pretty abrupt halt in the gradual uptrend in inflation. If I were a dovish policy maker, I’d say ‘what’s the harm in holding off a little bit and seeing how all this plays out.”’

That would make the June meeting more of a toss-up for a rate increase. As of Thursday, federal funds futures showed about a 57 percent chance that policy makers will raise their target rate for overnight bank lending. Financial markets in the U.S. were closed for Good Friday and the Easter holiday.

Retail sales were down 0.2 percent last month after a 0.3 percent drop in February that had previously been reported as a gain, Commerce Department data showed. Six of 13 major retail categories registered lower March receipts. At auto dealers, purchases fell 1.2 percent after a 1.5 percent slide a month earlier.

Low prices may have also played a role in restraining total sales as the retail figures aren’t adjusted to account for changes in inflation.

To be sure, two more months of economic data will be available before the Fed’s June 13-14 meeting. Spending, which accounts for about 70 percent of the economy, has room to pick up on the heels of steady hiring, healthier household balance sheets and more optimistic consumers. Income-tax refunds, which had been delayed earlier this year, may also provide a spark in the months ahead.

“The retail sales data are not adjusted for price changes which, as we have often noted, causes considerable misinterpretation of the underlying health of consumers,” Richard Moody, chief economist at Regions Financial Corp., said in a note after the report. “Ongoing improvement in labor market conditions, rising household net worth, and notably higher consumer confidence leave us with a much more constructive view of U.S. consumers than does the Q1 retail sales data.”

The decline in the CPI was the first in 13 months and was also broad, reflecting cheaper goods such as motor vehicles and gasoline, as well as a drop in the costs of services, including mobile-phone communications. The core CPI, which excludes energy and food, fell 0.1 percent.

Services prices also declined 0.1 percent, the most since 2010. Overall housing costs rose just 0.1 percent, the smallest advance in a year. The cost of lodging away from home dropped 2.4 percent, the most since October 2013, while the prices of mobile phone service slumped a record 7 percent. Combined with a 0.7 percent slide in the cost of goods, the most in 13 months, the results underscore the broad decline.

Still, “we don’t think this is enough to cause the Fed to swerve from their stated desire to continue gradually increasing the funds rate, though it may embolden the doves’ rhetoric,” Michael Feroli, chief U.S. economist at JPMorgan Chase & Co., wrote in a note. “Until it gets reversed with stronger inflation data, today’s number will leave lingering doubts about the popular reflation narrative.”

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Crude Oil

Oil Prices Slide as U.S. Crude Stockpiles Surge, Heightening Demand Concerns

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Crude oil

Oil prices declined on Thursday as concerns over demand intensified due to a larger-than-anticipated build in U.S. crude stockpiles.

Brent crude oil, against which Nigerian oil is priced, dropped by 0.5% to $83.25 a barrel while U.S. West Texas Intermediate crude oil fell by 0.3% to $78.28 a barrel.

The Energy Information Administration’s report revealed a substantial increase in U.S. crude oil stockpiles by 4.2 million barrels to 447.2 million barrels for the week ending February 23rd.

This surge surpassed analysts’ expectations and marked the fifth consecutive week of rising inventories.

While gasoline and distillate inventories witnessed a decline, concerns regarding a sluggish economy and reduced oil demand in the U.S. were amplified.

Satoru Yoshida, a commodity analyst with Rakuten Securities, highlighted that the significant stockpiles have heightened investor worries.

Moreover, the anticipation of delayed U.S. interest rate cuts further weighed on market sentiment, potentially undermining oil demand.

Traders have adjusted their expectations for rate cuts, with an easing cycle predicted to commence in June rather than March as previously anticipated.

Market participants await the U.S. personal consumption expenditures price index for insights into inflation trends, while the possibility of an extension of voluntary oil output cuts from OPEC+ looms over price dynamics, amid lingering uncertainty in the demand outlook and geopolitical tensions in the Middle East.

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Crude Oil

Crude Oil Shortage Threatens Dangote, Government Refineries, Minister Raises Alarm

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Dangote Refinery

The Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, has sounded a clarion call over a looming crude oil shortage that threatens the operations of the newly inaugurated Dangote Petrochemical Refinery and government-owned refineries in Nigeria.

Addressing stakeholders at the seventh edition of the Nigeria International Energy Summit in Abuja, Minister Lokpobiri expressed concerns that unless deliberate efforts are made to increase investments and crude oil production, these refineries may struggle to obtain enough feedstock for petroleum product manufacturing.

The Dangote refinery, a colossal project spearheaded by Dangote Industries Limited, has a daily requirement of up to 650,000 barrels of crude oil, while government-owned refineries could need approximately 400,000 barrels.

However, the current pace of crude oil production and investment in Nigeria falls short of meeting these demands.

Minister Lokpobiri highlighted the need to ramp up production and attract investments in the upstream sector to ensure adequate feedstock supply for the refineries.

He emphasized the importance of efficiently utilizing Nigeria’s abundant oil and gas reserves to enhance domestic energy security and economic prosperity.

Furthermore, the minister underscored the significance of investing in energy infrastructure and transitioning towards more environmentally friendly practices to address Nigeria’s energy needs effectively.

The alarm raised by Minister Lokpobiri underscores the urgency for strategic interventions and collaborative efforts to mitigate the impending crude oil shortage and secure the future of Nigeria’s refining industry amidst evolving global energy dynamics.

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Energy

NNPCL Pledges End to Nigeria’s Energy Scarcity Within a Decade

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Mele Kyari - Investors King

The Nigerian National Petroleum Company Limited (NNPCL) has announced a bold initiative aimed at ending Nigeria’s persistent energy scarcity within the next decade.

Mele Kyari, the Group Chief Executive Officer of NNPCL, revealed this ambitious plan during the opening ceremony of the seventh Nigerian International Energy Summit in Abuja.

Kyari’s announcement comes as a beacon of hope for millions of Nigerians grappling with chronic power shortages and energy deficiencies.

In his statement, Kyari expressed confidence that all issues related to energy scarcity in the country would be resolved within the next 10 years.

Assuring stakeholders of NNPCL’s unwavering commitment, Kyari emphasized the company’s dedication to collaborating with partners to bridge the energy deficit gap and foster prosperity for all Nigerians.

He highlighted NNPCL’s pivotal role as a key partner to oil-producing companies in Nigeria, facilitating the divestment of international oil companies from onshore and shallow water assets in the country.

Furthermore, Kyari underscored NNPCL’s statutory mandate as the enabler of national energy security, emphasizing the importance of sustainable production from divested assets to ensure energy security for Nigerians.

In addition to addressing domestic energy challenges, NNPCL is also exploring avenues for sustainable energy investment across Africa.

Kyari revealed the company’s intention to invest in the proposed African Energy Bank, aiming to secure funding for energy projects on the continent and guarantee regional energy security.

The event, attended by prominent stakeholders including government officials and representatives from international organizations, marks a significant step towards reshaping Nigeria’s energy landscape and fostering economic development through improved energy access.

As NNPCL charts its course towards energy abundance, Nigerians remain cautiously optimistic about the prospects of a brighter energy future.

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