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



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.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and, with over a decade experience in the global financial markets.

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In search Of Alternative Power Supply, Nigerians Spend N7T On Power Generation Annually



Electricity Pole

Nigerians, and by extension, their businesses, expend about N7 trillion annually on power generation, the Executive Director and Chief Operating Officer, Off-Grid Tech Solutions Ltd, Stephen Ogboko has said.

Ogboko, who made this known at a virtual news conference in Lagos said that inadequate power supply had been a major challenge facing businesses in the country, forcing them to source alternative power supply for their operations.

“Nigeria is among the countries with a very high need of electricity.

“A significant amount of the economy is powered largely by small-scale generators and almost 50 percent of the population have limited or no access to the grid.

“This could be effectively tackled with the deployment of off-grid renewable energy solutions by making electricity more cost effective and environmentally friendly,” Ogboko said.

He described renewable energy from off-grid resources as sustainable and cost-effective for farmers and Small and Medium Enterprises (SMEs).

Ogboko said Off-Grid Tech Solutions Ltd. partners with the global innovators of off-grid solutions to provide reliability.

“This is cost-effective and lasting solutions to societal problems toward improving the lives of people in developing nations.

“Our team of experts have worked all over Africa, and continue to work to provide solutions to a variety of sectors.

“We have marketed and delivered smart off-grid solutions for many years, providing permanent, efficient, safe and affordable solutions,” He said.

Ogboko said that the firm specialises in the marketing of heat lamps and incubators, gas-powered air conditioners and cooling fridge, mobile power solution-solar energy box, pressure cookers, among others.

He said that notable partners of the initiative were the Federal Ministry of Agriculture and Rural Development (FMARD), United Kingdom Department for International Trade (UK-DIT), International Institute of Tropical Agriculture (IITA), All Farmers Association of Nigeria (AFAN), Buckler Group, and Tywit.

The News Agency of Nigeria (NAN) reports that off-grid renewable energy solutions support the expanding access to modern energy services in an environmentally sustainable manner.

Off-grid renewable will deliver a wide spectrum of electricity services for households, public services, and also serve commercial and industrial purposes.

Off-grid energy solutions are one of the key drivers of the nation’s push for industrialisation.

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Crude Oil

Goldman Sachs Revised Down Brent Oil Forecast for Q3 2021



Brent crude oil - Investors King

Goldman Sachs Group, an American multinational investment bank and financial services company, has revised down its Brent oil price projection for the third quarter (Q3) of 2021 by $5 from $80 per barrel previously predicted to $75 a barrel following the surge in Delta variant COVID-19.

The investment bank predicted that the surge in Delta variant COVID-19 cases will weigh on Brent oil price in Q3 2021 even with the expected increase in demand.

However, the bank projected a stronger second half of 2021, saying OPEC+ adopted slower production ramp-up will offset 1 million barrel per day demand hit from Delta.

Goldman said, “Our oil balances are slightly tighter in 2H21 than previously, with an assumed two-month 1 mb/d demand hit from Delta more than offset by OPEC+ slower production ramp-up.”

The leading investment banks now projected a deficit of 1.5 million barrels per day in the third quarter, down from 1.9 million barrels per day previously predicted.

Therefore, Brent crude oil is expected to average $80 per barrel in the fourth quarter, a $5 increase from the $75 initially predicted and the bank sees 1.7 million barrels per day in the fourth quarter.

The oil market repricing to a higher equilibrium is far from over, with the bullish impulse shifting from the demand to the supply side,” the bank said.

Goldman added that even if vaccinations fail to curb hospitalisation rates, which could drive a longer slump to demand, the decline would be offset by lower OPEC+ and U.S. shale output given current prices.

Oil prices may continue to gyrate wildly in the coming weeks, given the uncertainties around Delta variant and the slow velocity of supply developments relative to the recent demand gains,” it said.

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Crude Oil

Oil Extends Gains on Thursday on Expectations of Tighter Supplies



Crude Oil - Investors King

Oil prices rose about $1.50 a barrel on Thursday, extending gains made in the previous three sessions on expectations of tighter supplies through 2021 as economies recover from the coronavirus crisis.

Brent crude settled at $73.79 a barrel, up $1.56, or 2.2%, while U.S. West Texas Intermediate (WTI) settled at $71.91 a barrel, rising $1.61, or 2.3%.

“The death of demand was greatly exaggerated,” said Phil Flynn, senior analyst at Price Futures Group in Chicago. “Demand is not going away, so we’re back looking at a very tight market.”

Members of the Organization of the Petroleum Exporting Countries and other producers including Russia, collectively known as OPEC+, agreed this week on a deal to boost oil supply by 400,000 barrels per day from August to December to cool prices and meet growing demand.

But as demand was still set to outstrip supply in the second half of the year, Morgan Stanley forecast that global benchmark Brent will trade in the mid to high-$70s per barrel for the remainder of 2021.

“In the end, the global GDP (gross domestic product) recovery will likely remain on track, inventory data continues to be encouraging, our balances show tightness in H2 and we expect OPEC to remain cohesive,” it said.

Russia may start the process of banning gasoline exports next week if fuel prices on domestic exchanges stay at current levels, Energy Minister Nikolai Shulginov said, further signalling tighter oil supplies ahead.

Crude inventories in the United States, the world’s top oil consumer, rose unexpectedly by 2.1 million barrels last week to 439.7 million barrels, up for the first time since May, U.S. Energy Information Administration data showed.

Inventories at the Cushing, Oklahoma crude storage hub and delivery point for WTI, however, has plunged for six continuous weeks, and hit their lowest since January 2020 last week.

“Supplies fell further by 1.3 million barrels to the lowest level since early last year, theoretically offering support to the WTI curve,” said Jim Ritterbusch of Ritterbusch and Associates.

Gasoline and diesel demand, according to EIA figures, also jumped last week.

Barclays analysts also expected a faster-than-expected draw in global oil inventories to pre-pandemic levels, prompting the bank to raise its 2021 oil price forecast by $3 to $5 to average $69 a barrel.

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