Retail Sales Rise as Import Prices Fall

Americans are buying more goods as importers continue seeing lower prices.

Retail sales rose 0.2% on a month-over-month basis in January, according to a new report by the Census Bureau. They rose 3.1% from a year ago, with an 8.7% increase in non-store retailers. Sporting goods, hobby, book and music stores showed a surprisingly strong increase, rising 9.1% from the same period a year ago.

Americans are buying more goods as importers continue seeing lower prices.

Retail sales rose 0.2% on a month-over-month basis in January, according to a new report by the Census Bureau. They rose 3.1% from a year ago, with an 8.7% increase in non-store retailers. Sporting goods, hobby, book and music stores showed a surprisingly strong increase, rising 9.1% from the same period a year ago.

Excluding auto, retail sales rose 2.5% on a seasonally adjusted basis, indicating broad-based retail spending strength. The only significant decline was at gasoline stations, which saw a 9.5% annual decline.

Import Prices Weaken

Import costs fell 1.1% for the second month in a row, according to the U.S. Bureau of Labor Statistics. The BLS saw imports with their largest monthly drop in prices since August 2015, as “both fuel and nonfuel prices continued to trend down” in January.

Some analysts believe a decline in prices has actually stimulated spending, and has helped retail sales rise, as incomes remain flat for many Americans.

While there was widespread price declines, much of the declines were attributable to weakness in oil. Nonfuel import prices fell 0.2% in January from the prior month, far below the broad decline, although nonfuel import prices remained down 2.9% over the past 12 months.

A Future for NIRP

While retail sales are showing signs of improvement, the fall in import (and export) prices may motivate the Federal Reserve to lower interest rates, and experiment with the so-called negative interest rate policy, or NIRP, that has become a monetary policy tool in Europe and Japan.

Pimco, one of the world’s largest bond traders, said last Friday that NIRP might become a reality for the Fed. Pimco’s Scott A Mather wrote that this would be a mistake, arguing that NIRP has contributed to turmoil in financial markets around the world. “At a minimum, NIRP is a contributing factor to the financial market volatility of the past few months. And contrary to current central bank dogma, NIRP is possibly one of the major catalysts behind the tightening in global financial conditions,” he said.

According to Mather, “while NIRP undoubtedly helps lower government bond yields, which in isolation represents a loosening of financial conditions, it may be causing the opposite effect on overall financial conditions: widening of credit and equity risk premiums, increased volatility and reduced credit availability from a more stressed bank system.” Instead, Mather encourages the Fed to work on “lowering credit and equity risk premiums directly (for example, asset purchase policies directed at credit and equity, or raising the inflation target).”

The urge for more QE or higher inflation targets is a reversal from former Pimco boss Bill Gross, who argued in the past that both were toxic.