US Retail Sales Jump 3% In January As Inflation Continues To Fall: What Investors Need To Know

The SPDR S&P 500 ETF Trust SPY is volatile Wednesday morning after retail sales in the United States jumped more than economists expected in January, suggesting consumers are spending again after pulling the reins on holiday spending budgets.

What Happened: The Census Bureau said U.S. retail and food services sales were up 3% in January versus estimates for a 1.8% increase. For comparison, retail sales in December were down 1.1%. 

Core retail sales, which excludes gasoline and autos, were up 2.3% versus estimates for a 0.8% increase. Core retail sales in December fell 1.1%

Total sales from November through January were up 6.1% from the same period a year ago.

Why It Matters: Wednesday's retail sales print suggests consumer demand is picking back up as inflation continues to fall.

On Tuesday, the Labor Department reported a 6.4% year-over-year increase in the consumer price index for January. The headline CPI number was down from 6.5% in December, but came in above average economist estimates of 6.2%.

Related Link: Inflation Continues To Cool, But At Slower Pace Than Economists Predicted: Stocks Struggle To Price In The Fed's Next Move

This week's data comes in the wake of two consecutive policy downshifts from the Federal Reserve. Many economists have indicated that inflation is not coming down fast enough for the Fed to ease further. It's possible the central bank could opt for a more aggressive 0.5% hike at its next meeting in March or simply choose to continue with 0.25% hikes for longer than previously expected.

The bond market is projecting a 87.8% chance of a subsequent 0.25% hike in March and a 12.2% chance of a 0.5% hike, according to CME Group data.

The Fed's next decision on rates is due March 22, but it will get a look at plenty of new data before then, including CPI for February, which is due March 14.

Related Link: 3 Experts Agree: Inflation Is Not Coming Down Fast Enough For The Federal Reserve

SPY Price Action: The SPY is down 0.51% at $410.55 at the time of writing, according to Benzinga Pro.

Photo: Lorena Mulet from Pixabay.