PPI Matches Largest Monthly Decline in US History, Retail Sales Excluding Gas Station Receipts Rise

- The Producer Price Index for October fell -1.6% versus estimates of a -.5% decline and a -1.3% decrease in September.
- The PPI Ex Food & Energy for October fell -.9% versus estimates of a .1% increase and a .6% gain in September.
- Advance Retail Sales for October fell -.2% versus estimates of a -.4% decline and a -.8% fall in September.
- Retail Sales Less Autos for October fell -.4% versus estimates of a -.2% decline and a -1.2% fall in September.

BOTTOM LINE: Prices paid to US producers fell 1.6% in October, matching the biggest monthly decline in US history, as energy costs and motor vehicle prices dropped, suggesting inflation pressures are abating, Bloomberg said. Excluding Food & Energy, the core rate fell .9%, the largest decline in 13 years. So far this year, producer prices are declining at a 2% rate, compared with a 6.4% increase in the first 10 months of last year. Core prices are rising at a .7% rate versus a 1.6% increase during the same period last year. Prices for passenger cars declined 2.3% versus a 2.8% increase in September. Food prices fell .8% versus a .7% rise in September. Costs of intermediate goods, which are used in the early stages of production, fell 1.1%. Prices for raw materials fell 10.5% and are down 22% since October 2005. As I said a number of months ago, inflation concerns have peaked for this cycle. I still expect the next move by the Fed to be a cut in the first half of next year as inflation continues to decelerate.

Retail sales in the US fell less than expected in October as increases in purchases of food and autos helped make up for a steep drop in gasoline-station receipts, Bloomberg said. Retail sales, excluding gas stations receipts, rose .4%. A healthy job market and falling gas prices continue to boost consumer spending. Sales at automobile dealerships and parts stores rose .6% last month versus a .7% increase the prior month. Filling station sales declined 6% versus an 11% decline the prior month. The average price of a gallon of gas was $2.24 in October versus $2.95 in August. I expect retail sales to exceed estimates this holiday shopping season as rising stock prices, a healthy labor market, lower inflation, low interest rates, rising consumer confidence and falling energy price offset the housing slowdown.