After a week of major jobs reports, inflation data returns to the spotlight this week as June’s US Consumer Price Index (CPI) and the following day’s Producer Price Index are due to be released.
Investors will be on the lookout for any declines that could justify a U-turn by the US Federal Reserve on its intention to hike interest rates by 25 basis points (bps). A return to tightening monetary policy would follow after the Federal Reserve last month suspended interest rate hikes for the first time in more than a year. The Fed’s regulation helped bring CPI down from 9% in August 2022 to 4% in May, although more recently it has also raised concerns of an overshoot that could plunge the economy into a deep recession.
On Wednesday, US monetary policy observers will be eyeing the release of the June CPI by the Labor Department. The CPI has steadily declined since last year’s peak. The consensus of economists sees the index falling in the mid-range of 3% in June, although Edward Moya, senior market analyst at forex market maker Oanda, wrote in a note on Monday that it could fall to 2.8%. However, Moya also pointed out that core inflation, which excludes more volatile food and energy costs, could remain elevated due to an expensive housing market. “Price pressures could persist throughout the summer,” Moya wrote.
The PPI, which measures price changes at the wholesale level, often anticipates changes consumers will face in the future. The producer price index (PPI) slipped to 1.1% a year in May, beating expectations for a 1.5% decline and well below the previous month’s reading of 2.3%. The consensus is for a reading of 0.4% in June.
Also on Thursday, the US Department of Labor will announce jobless claims for the week ended July 8th. Recent labor market data offer somewhat different perspectives on the state of the labor market. Last week’s ADP report showed that companies added nearly half a million private sector jobs, more than double what economists were expecting. The stronger-than-expected results provided support for the Fed to resume its aggressive inflationary stance. A strong labor market indicates that the economy is expanding, which often means higher prices. But an unexpected – albeit slight – rise in jobless claims on the same day and a weak nonfarm payrolls report later in the week nuanced the bigger picture.