Last week ended with the ‘good’ news from the US economy in the form of the July jobs bonanza, this week it will be the ‘bad’ – July’s Consumer Price Index.
Friday saw the news that the US generated 528,000 new jobs last month, almost double the 258,000 average from the market.
This despite several interest rate rises from the US Federal reserve which are supposed to slow demand and jobs growth. That has yet to happen.
As a result of the surge in jobs last month, US investors now think the next rate rise from the Fed will be 0.75% instead of 0.50% or 0.25% it was looking like earlier last week.
The jobs data has seen a major change, again in US thinking. Will this week’s CPI data change, or add to the new belief?
Whatever, the US the central bank won’t be in a position to raise rates until late September because that’s when the next Fed meeting will be held.
It will have not only the July jobs and inflation data, but also August’s so if there’s more strong reports, a bigger rate rise could be on the cards – 1% anyone?
The June CPI reading was 9.1% and US forecasts are for a fall to around 8.8% perhaps, depending on how the impact of a forecast near 11% drop in petrol prices in the US last month.
A fall to say 8.5% (annual) might take the pressure off the fed and market thinking could return to a rise of 0.50%.
Moody’s economists wrote on Friday “The decline in retail gasoline prices will be disinflationary for the CPI. Changes in retail gasoline prices closely track changes in the CPI for gasoline.
“Retail gasoline prices point toward a 10.8% decline in the CPI for gasoline, which would reduce growth in the headline CPI by 0.5 percentage point in July.
“Even with the decline, the CPI for gasoline is going to add a lot to year-over-year growth in the headline result. Also, while the headline CPI will post a small monthly gain in July, the core CPI, which excludes food and energy, will remain hot.”
And the AMP’s chief economist, Shane Oliver wrote at the weekend the “July CPI data which is expected to show a fall in headline inflation to 8.8%yoy (from 9.1%) helped by lower gasoline prices but a rise in core inflation to 6.1%yoy (from 5.9%). ”
There’s also the latest producer (PPI) and import price data as well – the PPI is over 11% at the moment.
The US earnings season continues this week as well (See separate story).
In Europe, the UK economy likely to have contracted in June by 1% month on month, resulting in a 0.1% quarter-over-quarter decline for the second quarter.
Euro zone industrial production will likely contract 0.8% month over month in June after a 0.8% rise in May. New car registrations continued to slump considerably in year-ago terms during the month, which also caused concern that output in the car sector did not pick up much.
All eyes will be on China’s consumer and producer price data for July.
Moody’s sees producer price growth around an annual 5.8%, continuing the deceleration trend as industry struggles with the aftermath of the Covid lockdowns.
Consumer prices are forecast to rise 2.9% y/y in July, up from 2.5% in June. Pork will be an important upward contributor on account of prices jumping again in July despite government intervention to try and cool price rises.
