Core Retail Sales Just Beat Expectations While Annual Inflation Drops To Lowest Since 2009

Following several months of disappointing retail sales, and two months of missed expectations, October finally saw the best beat in headline expectations since April, with retail sales rising 0.4% vs 0.1% expected. However, as has been the case in all of 2013, the bulk of this beat was driven by car sales, which rose by 1.3%, leaving sales ex autos beating by the tiniest of fractions at 0.2% vs 0.1% expected, and ex autos and gas +0.3%, vs 0.2% expected.

Looking at the components, following month after month of clothing store sales misses, this category finally posted a modest 1.4% rebound, together with an increase in Electronic and Sporting goods sales, amounting to 1.4% and 1.6%, respecitvely. This was offset by the traditionally strong Building materials sales which declined by 1.9% in October.


Unlike the exuberant inflation-spree that government-provided CPI showed during the Fed's QE2, since the start of QE3, inflation data (according to the never-manipulated government providers) has been on a downtrend. The latest print  - at expectations of 1.0% year-over-year - is the lowest CPI since October 2009. What is perhaps more notable is the drop into deflation on MoM basis (CPI -0.1% MoM vs +0.1% exp). Of course, the market's reaction is exuberance as this clearly gives the Fed a green light to provide more life-giving liquidity to enable nominal stock prices to rise. However, a glance at the chart below might just remind traders (and the Fed) of the Einsteinian foolishness that expectation.



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