US business inventories rose in December, however they slowed down rather sharply. In China, inflation stayed rather subdued as consumer prices continued to decline in January.
US inventories, excluding automobiles increased by 0.5 percent in December after coming in at 0.4 in November. This came in line with expectations. This is a key component of the GDP. Retail inventories, not including automobiles gained 0.2 percent. This number is down sharply from November’s reading of 0.6 percent. The government in its advanced estimate said fourth quarter GDP inventories increased by $127.2 billion. This is its largest rise since Q1 1998.
This change in inventories from Q3 will add 0.42 percentage points to the Q4 3.2 percent annualized GDP growth. This is confusing economists who expected a slower pace of restocking. The current level of inventory is not sustainable. There is an expectation that businesses will cut back purchases to work through the current inventories on hand. This should effect growth and GDP for Q1 of 2014.
In other data, business sales were up 0.2 percent in December. This was also sharply lower from November which came in at 0.7 percent. At the pace we are seeing, especially by the December number, it will take businesses about 1.3 months to clear shelves. This is up from 1.29 in November.
China’s Inflation Remains Low
Looking at China, we are seeing inflation staying rather subdued. This means inflation, for now is not a concern for policy makers.
Consumer prices came out 2.5 percent higher from a year ago. This was a little over estimates of the 2.3 percent we expected. Producer prices (PPI), however, fell for the 23rd straight month. The PPI was down 1.6 from a year ago. We expected the number to decline by 1.7 percent. On a monthly basis, the CPI was up 1 percent while PPI fell 0.1 percent. This is indicative of a benign inflation rate and gives China room to maneuver id the economy slows even further.
The CPI remains below the target set by the Peoples’ Bank of China (PBOC). This means they do not need to worry about tightening anytime soon. We have seen the warmest Chinese New Year in over 10 years which has bumped up the food harvest. Commodity prices are stable which means inflation in prices are lower than expected.
BINARY OPTION’S TAKE FOR THE DAY
This data should help support the US Dollar and the Aussie Dollar. We should also see commodity prices, especially in the metals, like copper see some volatility. Gold has been supported rather nicely thanks to physical demand from China.