The weather has been blamed for lower retail sales but, if the trend continues, could this impact the Fed’s decision to raise interest rates in March? [Xinhua]
A spate of weaker than expected economic data in the US has once again fuelled speculation about the Federal Reserve’s resolve to announce yet another interest rate hike in March.
Warmer temperatures impacted by the El Nino weather system pushed retail sales, particularly for traditional winter commodities, down by 0.1 per cent from November, a Department of Commerce report showed this week.
The drop, particularly during the holiday season shopping boom, contributed to lower than expected growth in retail sales for the whole year.
In 2015, retail sales grew by only 2.1 per cent, a marked difference from the 3.9 per cent in 2014.
A break down of the Commerce Department report reveals that there was a decrease of 0.9 per cent at clothing chains and 0.2 per cent in the electronic goods sector.
Analysts fear that despite low prices at the pump, American consumers have preferred to save their money rather than go out shopping.
Retail sales are at their lost since 2009, the say.
Interest rates had been near-zero since the US sub-prime mortgage crisis of 2008 – which plunged many global economies into recession – in a bid to prop up consumer spending.
But on December 16, the Federal Reserve’s Open Market Committee (FOMC) voted to raise interest rates by a quarter point.
The Fed, however, warned that the pace of such increases will be closely tied to the US and global economic health.
The volatility that has gripped much of the world’s stocks since the beginning of 2016 has many markets fearing that this will set the trend for the rest of the year.
There are also concerns within the FOMC that the health of the US economy may have been overstated.
While a low unemployment rate (currently at five per cent) and GDP growth (2.1 per cent for 2015) are indicators taken into consideration by the FOMC, the concern remains over low inflation.
The inflation rate in November 2015 year on year stood at 0.5 per cent, well below the two per cent target, which is considered ideal by most Western economies.
“Consumer price inflation continued to run below the FOMC’s longer-run objective of 2 percent, restrained in part by declines in both energy prices and the prices of non-energy imported goods,” the FOMC minutes released on Wednesday said.
A low inflation rate means that retail stores could hoard commodity until prices rise again.
The BRICS Post with inputs from Agencies
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