Retail Sales Surge

With the increased delivery of the vaccine and the distribution of stimulus checks, investors have anticipated that economic growth will be enormous this year. This has significantly raised the outlook for future inflation, which has caused a sharp increase in mortgage rates from the record low levels seen last year. The growth and inflation data released this week was stronger than forecasted by economists nearly across the board. As impressive as the reports were, however, investors had expected even better growth figures, and mortgage rates ended the week lower.

The housing market also has benefited from increased economic activity, as builders race to construct desperately needed new homes. In March, housing starts jumped a stronger than expected 19% from February to the fastest pace since 2006. Rising costs for labor and materials are pushing up prices, though. 

With the vaccine rollout moving forward and the economy reopening, investors are worried that inflation may be heading higher, and this week's data reinforced those concerns. The Consumer Price Index (CPI) is a widely followed monthly inflation report that looks at the price change for goods and services. In March, CPI was 2.6% higher than a year ago, up from 1.7% last month, and the largest annual rate of increase since August 2018. Higher gas prices were a major factor in the increase, however. Core CPI, which excludes the volatile food and energy components, was 1.6% higher than a year ago, up from 1.3% last month, but still well below the level of 2.3% seen in February 2020 before the pandemic. 

Looking ahead, investors will continue watching Covid case counts and vaccine distribution. Beyond that, it will be a light week for economic data. Existing Home Sales will be released on Thursday and New Home Sales on Friday. The next European Central Bank meeting will take place on Thursday.