Lower Gasoline Prices Dropped U.S. Retail Sales

Total import prices fell 2.1% last month after an unrevised 0.8% August increase. The decline outpaced Consensus expectations for a large 1.5% decline.

Prices of petroleum imports plunged 10.3% after a 2.1% August gain. In October, the price of Brent crude oil already has fallen another 8.5% to $57.07 per bbl. Less petroleum, import prices increased a modest 0.1% after the firm 0.5% rise during August.

During the last ten years there has been a 66% (negative) correlation between the nominal trade-weighted exchange value of the US dollar vs. major currencies and the y/y change in non oil import prices. The correlation is a lower 47% against a broader basket of currencies and a lower 57% against the real value of the dollar.

Have U.S. Import Prices Become Less Responsive to Changes in the Dollar? from the Federal Reserve Bank of New York can be found here.

Capital goods prices were unchanged (-0.2% y/y) for the second month. Excluding computers, capital good prices rose 0.2% (1.8% y/y) after having been unchanged during August. Prices for nonauto consumer goods rose 0.1% (0.9% y/y) for the second month while prices for nonoil industrial supplies & materials rose 0.4% (6.6% y/y) after a little revised 1.5% August increase.

Export prices fell 0.5% as both agricultural prices fell 0.7% (4.4% y/y) and nonagricultural commodities prices dropped 0.5% (+3.7% y/y).

Oil Prices and the U.S. Trade Deficit from the Federal Reserve Bank of San Francisco is available here.

Total business inventories rose 0.6% in August following an upwardly revised 0.7% July gain. Consensus expectations had been for a 0.5% increase. The gain lifted the y/y rate of business inventory accumulation to its highest (7.7%) since early 2005.

During the last ten years there has been a 57% correlation between the y/y change in business inventories and the change in factory sector industrial production. Using quarterly figures, there has been an 84% correlation between the change in real private nonfarm inventories and production.

Business sales rose 0.8% (8.1% y/y) on the strength of higher wholesale sales (12.5% y/y) and higher factory shipments (6.1% y/y). The inventory to sales ratio was stable for the third month at 1.26, but was above the May low of 1.25.

Retail inventories rose 0.5% and that's the same rate of increase excluding autos (4.4% y/y) which rose 0.5% (14.1% y/y). Higher building materials inventories led the rise with a 1.0% (9.4% y/y) gain. General merchandise inventories grew 0.7% (0.7% y/y) and clothing store inventories rose 0.4% (5.8 y/y). Furniture inventories fell 0.3% (+4.4% y/y).

Wholesale inventories surged another 1.1% (9.7% y/y) in August though petroleum inventories fell 6.5% (+9.7% y/y). Drug and chemical inventories surged while durables rose 0.9% (10.0% y/y).

Factory inventories rose 0.4%, half the prior month's rate of accumulation.

Understanding How Employment Responds to Productivity Shocks in a Model with Inventories from the Federal Reserve Bank of Richmond can be found here.

Last week, we discussed the CPIs of two small Eastern European countries, who were quick in reporting their September data; in both cases, Estonia and Slovenia, there was evidence that the recent fall in energy prices was already helping cut inflation, and nip a price problem in the bud. Today, we hear from a much larger European economy, France. Sure enough, lined out in some detail, is a clear statement about the fall in oil product prices.

France's CPI has been pretty well behaved all along, and we've commented more than once about how reassuring it has been that so many countries have not suffered a major, sustained acceleration in overall consumer prices. So in one sense, there is little to tell. But that's a good thing. The total CPI did fall in September by 0.3%, seasonally adjusted, after a 0.3% increase in August. Over the last 12 months, the not seasonally adjusted index is up 1.2%, a noticeable slowing from August's 1.9%. Similarly, Germany's data, which came out yesterday, had a 0.1% decline in September and a 12-month increase of just 1.0% after 1.7% in August.

We see from the table that in France the subset excluding energy is marginally firmer for the 12 months, up 1.3%, indicating that weaker energy lowered the total by 0.1% in September; that contribution in August was a +0.5%, so the latest is a significant turnaround. Energy prices themselves dropped 2.6% in the month alone and oil products, 4.3%.

This helped reduce other line items, of course. Transportation costs were up a mere 0.6% from a year earlier after a 3.5% advance in August, while housing -- which includes utilities in the French layout -- was up 3.8% in September from a year ago, much less than August's 4.7%.

Prices of some things remain troublesome, most notably food. Food prices, in France and elsewhere, have been picking up. The 12-month rise was 2.7% in September, following 2.4% in August and just 0.8% across 2005. The same is true in Estonia, where the category was up 7.5% in September from a year ago and in Slovenia where it was up 3.8% in September and 4.7% in August compared with 0.8% over 2005. Among the larger economies, in Germany, food was up 3.1% in September; it had also risen just 0.8% during 2005.

So we seem to face a rolling-kind of inflation evolution. The total inflation rate in several countries is remaining remarkably calm, but relative prices are all over the board. This is healthy. Some sector is always "troublesome" and that keeps people, merchants and policymakers vigilant. But economies are increasingly flexible, so that the trouble in one area is met with adjustment elsewhere instead of just battering its way through everything. We hope this situation holds; it will be good for the general welfare if it does.