Summary: 

• US CPI misses forecasts for both headline and core reading
• Retail sales also miss although core reading beats
• USD comes under pressure; Gold spikes higher

The biggest economic release of the day has seen a quick swoon in the US dollar with the greenback falling after both the US consumer price index (CPI) and US retail sales figures came in worse than expected. The miss in the inflation readings are of particular concern with the Fed’s view that it is transitory looking increasingly untrue. Let’s now look at the data itself.

The CPI reading for September month on month showed an increase of 0.5% compared to 0.6% expected and 0.4% prior. The figure itself is the highest since the February release but with the release missing the forecast and with a core reading of 0.1% m/m against 0.2% expected and 0.2% prior there is a worrying lack of a pickup in inflation to justify further rate increases from the Fed. 

 The rise in inflation seen since the beginning of 2015 is showing further signs of stalling. Source: XTB Macrobond

The year-on-year numbers are also sub-forecast with a 2.2% y/y rise below the 2.3% expected. This is an improvement on the prior reading of +1.9% y/y but similarly to the monthly data the core reading was also below an expected 1.8% coming in at 1.7%. Whilst the reading is above the 2% mandate for the Fed the PCE core remains stubbornly low and given that today’s miss in the M/M figures is the 6th out of the last 7 releases it is quite clear that inflation is running below forecast. 

At the same time the most recent retail sales figures were announced with the headline reading of +1.6% M/M also missing the consensus forecast which was in this case for a rise of 1.7%. The core component however was a positive in rising to +1.0% M/M compared to 0.9% forecast. Overall the retail sales data remains fairly solid with both the headline and core y/y readings maintaining their recent rise. 

 Both headline and core retail sales continue to be fairly solid. Source: XTB Macrobond

In terms of market reaction the US dollar has experienced a swift move lower with the USDIDX which has fallen to its lowest level in more than 2 weeks since the release. The market has now retraced almost 50% of the rise seen after making a 2017 low around 91 back at the start of September and should there be a clean break under 92.54 then further declines may lie ahead. 

 The USD index has fallen to its lowest level of the month following the release and the market has now handed back almost 50% of its recent gains. Source: xStation

Gold is often one of the most sensitive markets to US data releases and today has been no exception with the precious metal surging to its highest level of the week and retesting the 1300 number after the data dropped. 

 Gold has surged higher after the data and trades back at the 1300/oz level. Source: xStation