Incoming data is pointing to sustained growth. Retail sales increased again in April, albeit at a slightly slower pace than in previous months. Trade activity picked up in March and the deficit widened by nearly $3 billion. Finally, inflation picked up again in April, especially from rising food and energy costs, although the pace slowed a bit from the previous two months.

Consumer Price Index
The consumer price index rose 0.4% in April after rising 0.5% in the each of the previous two months. The relative slowdown in headline inflation was driven by slower growth in food and energy prices. Energy rose 2.2% after rising 3.5% in March. Food prices increased 0.4%, down a bit from March’s 0.8% rate. Over the year the CPI is up to 3.1%. Food prices rose 3.2% over the past year while energy prices were up 18.6%. Core prices, net of food and energy prices increased 0.2% in April and are up 1.3% over the year. Food and energy prices have consistently applied pressure to headline inflation this year and there does not appear to be much respite over the next few months. Core prices have also increased over the past few months, although the pace has been more gradual. We expect further price increases over the next few months as the economy picks up momentum.

Retail Sales
Total retail sales increased 0.5% in April, after growing by a revised 0.9% rate in March (originally reported as 0.4%). Gains were spread across many retail categories, including gas station sales (2.7%), food and beverages (1.2%), and nonstore retailers (1.0%). The largest decline came from electronics and appliances retailers (-2.2%), followed by sporting goods and hobbies (-1.9%), and furniture and home furnishings (-1.1%). Sales are 7.6% above their year-ago level. Core sales, net of building materials, gas stations, and motor vehicle sales were up slightly by 0.2%. Recent gains in retail sales are consistent with slightly stronger personal consumption expenditures in the second quarter.

International Trade Balance
The U.S. trade deficit in goods and services widened to $48.2 billion in March from a revised $45.4 billion in February. Exports rose 4.6% to $172.7 billion and imports increased by 4.9% to $220.8 billion. The trade deficit in goods widened by 5.1% to $62.1 billion and the trade surplus in services increased by 1.5% to $13.9 billion in March. There was a large pickup in the amount of trade in March, but it does not fundamentally change our outlook for the trade balance going forward.