The Day at a Glance | September 14 2023

*The European Central Bank (ECB) increased its reference rates by ¼ point and pointed towards a possible end to its tightening cycle. 

*In the US, retail sales accelerated in August, widely exceeding market forecasts. 

*Producer inflation in the US recorded its largest change since June 2022 in August; its reading set at 0.7% m/m, surpassing the 0.4% m/m forecast and pushing the annual reading to a four-month high of 1.6%.

Economic environment

The European Central Bank increased its reference rates for the tenth consecutive time. The decision to raise the rate was based on an assessment made on the inflationary outlook, economic and financial data, as well as the strength of monetary policy´s transmission. As a result, the refinancing rate reached a 22-year high and set at 4.5%, the deposit rate at 4.0%, and the lending rate at 4.75%. However, the most important part is that, with this latest adjustment to the rates, the ECB has moved to levels that, by maintaining them for a long enough time, this will substantially contribute to inflation returning to its target. Additionally, concerning the crossroads of activity and prices that the central bank is facing, the ECB raised its average inflation estimates for 2023 and 2024 to 5.6% and 3.2%, respectively, while lowering it for 2025 to 2.1% due to a higher trajectory in energy prices. Furthermore, inflationary forecasts were significantly revised downward by the ECB to 0.7% in 2023, 1.1% in 2024, and 1.5% in 2025.

Retail sales recorded their best summer performance with their highest reading in three months. Retail sales in the United States recorded a 0.6% m/m increase in August, showing an acceleration from the 0.5% in the previous month and surpassing the 0.2% expected by analysts. Gasoline station sales reported a 5.2% m/m increase due to higher gasoline prices (+10.0%). Additionally, sales at clothing and electronics stores logged 0.9% m/m and 0.7% m/m growth, respectively, as well as vehicle and parts sales (0.3% m/m). In contrast, sales at bookstores and miscellaneous stores decreased -1.6% m/m and -1.3% m/m, respectively. Overall, August´s figures indicate that consumer spending remains robust despite high financing costs and inflation’s cumulative effect.