Can consumers keep up with inflation? A breather could weigh on the dollar

  • Economists expect the Retail Sales Control Group to have risen 0.5% in August, unadjusted for inflation.
  • Meeting high estimates would reflect a drop in actual consumption.
  • Any failure would allow the dollar to take a more significant breather in its uptrend..

Never underestimate the American consumer: Tireless Americans have been on a shopping spree, almost regardless of price increases. In August, the highly visible price in the bomb fell and potentially left more money for Americans to buy other goods. That is, at least what economists think. I will explain why I think the estimates are high and how it could affect the dollar.

Gasoline prices have lowered expectations for headline retail sales to around 0%, but investors are concerned about the core numbers, as seen in Tuesday’s inflation numbers. In the case of retail sales, the The control group is what mattersAnd here, expectations are high. An increase of 0.5% is expected.

The reference scenario

The first hole I want to poke in these expectations is that the control group beat estimates in the last two releases, so a you can’t rule out miss.

Font: FXStreet

Second, a 0.5% rise would fall short of the 0.6% rise in core CPI. It is essential to point out that retail sales figures are not adjusted for inflation, contrary to those of the Gross Domestic Product. Therefore, the mere fact of meeting the estimates of 0.5%, lower than the 0.8% and 0.7% registered last month, would represent a contraction in real sales.

Even if the data meets estimates, there is room for a downward correction in the safe-haven dollar and an upward correction in stocks. Markets are struggling to recover from the inflationary shock and any not-so-good economic news would drive prices down for a 100 bps rate hike from the Fed next week. That would weigh on the dollar.

The Alternative Case for an Upside Surprise

I think that he the combination of relatively high expectations and the desire to return to a risk-on mood could trigger a negative result for the dollar as base scenario. However, a positive result cannot be ruled out.

If core retail sales beat estimates, and especially if they repeat last month’s 0.8% gain, the dollar would rise. It would show that the US consumer is unstoppable and that price pressures are far from abating. In addition to strengthening the chances of a quadruple-sized 100 bps next week, a strong figure would diminish the chances of lower rate hikes in the following meetings.

In the event of a bullish surprise, I expect the dollar to rise, but the moves would likely be a long way from the inflation-induced jump.

final thoughts

What retail sales make up about 70% of the US economy., data updated for August issues and is set to rock stocks and the dollar. My baseline scenario is a disappointing outcome, or at least one that would allow the dollar to pull back from highs.

However, investors are focused on the inflation numbers and can save some dust for Friday’s University of Michigan Consumer Sentiment Index report, and its critical figure of inflation expectations. It matters because the Fed chairman Jerome Powell He said it, and its importance is even greater when it is published days before the bank’s decision.

All in all, retail sales the data is important and would serve as an opportunity to reposition before another figure related to inflation.

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