Disappointing Data: Inflation Hot, Retail Cold in January

By at 14 February, 2018, 9:42 pm

by Raymond J. Keating-

According to reports published on the morning of February 14, we saw that inflation ran too hot in January, and retail sales were too cold.


According to the U.S. Bureau of Labor Statistics, CPI inflation hit 0.5 percent in January. Over the past year, inflation registered 2.1 percent. That’s quite tame. However, for the past six months, the annualized rate of inflation registered 4.0 percent. That’s anything but tame.

The recent trend in inflation most certainly is troubling. But it’s important to understand that inflation is not caused by too much economic growth – as so many talking heads are once again prattling on about. In reality, inflation ultimately is a monetary phenomenon, that is, as the old definition goes, too much money chasing too few goods. Therefore, increased economic growth actually is anti-inflationary.

Rather, the real problem, as we have noted for years now, is that the unprecedented expansion in the monetary base by the Fed has mainly led to a historic increase in bank reserves. The question long has been: What happens if, or when, those reserves actually start moving into the economy in a major way? That remains the question, with concerns rising over inflation, for the new Federal Reserve chairman, Jerome Powell.

Retail Sales

Meanwhile, the U.S. Census Bureau reported that U.S. retail and food services sales for January were down by 0.3 percent. And that followed on a revised estimate of no growth (0 percent) for December.

That’s troubling, though it should be noted that month-to-month retail sales can be volatile. In fact, a counter to the poor growth numbers over the past two months are the following:

1) retail and food service sales in January 2018 were up by 3.6 percent versus January 2017, and 2) the three-month period of November 2017-January 2018 grew by 4.9 percent versus the three-month period of November 2016-Janaury 2017.

The policy formula for a strong growth, low inflation economy has not changed. That is, low taxes, light regulation, limited government spending, free trade, strong property rights, and sound money. Get that policy mix right, and let entrepreneurs, businesses, investors and workers grow the economy.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.

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