A few months ago when they US economy looked like it was pulling slowly out of its post-financial crisis malaise, CPI was an important data release for the market. There was an outside chance that the Fed could begin to tighten later this year and a tightening move in the early part of 2012 seemed quite likely.
Ah, those were the days…
CPI could rise massively at the core level and there is nothing the FOMC can do about it. With the economy slipping back below the waves again, stagflation becomes a very real risk…
Retail sales are always important, and given the recent signs of a rapid deceleration of US growth (mostly in reaction to soaring energy and food prices) they are even more important than normal this month.
A decline of 0.5% is priced in to a pessimistic market. Better sales data may improve risk appetites. Poor sales are likely to keep equity markets on a downward path and the dollar modestly underpinned as is so often the case when markets are risk averse.
