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U.S Inflation


MongiIG

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US inflation came in higher than expected in June as the Bureau of Labor Statistics reported the largest one-month and 12-month increases since 2008.

 

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The Consumer Price Index for All Urban Consumers rose by 0.9% in June, up from 0.6% in the previous month, while the 12-month rate was at 5.4%, beating a market expectation of 4.9%.

 

European indices have been largely treading water today, with a sharp rise in US inflation driving GBPUSD lower to offset some of the fears around a more hawkish stance at the Fed. With both core and headline inflation outstripping expectations, the core reading of 4.5% is perhaps the most notable given that it removes the kind of volatile aspects that the Fed could use to explain away such a rise. Instead, we are seeing prices continue to push higher in a move that many will believe could undermine the view that this is simply a transitory rise in prices. Nonetheless, the relatively muted market reaction does highlight the fact that many have growth accustomed to the idea of near-term inflation, with the threat of a hawkish Fed seemingly disregarded for now.

Nonetheless, while markets remain somewhat optimistic that near-term inflation will be fleeting in nature, there is a very real risk that elevated prices persist to the point that the Fed is forced to shorten the timescales associated with the first rate rise. One key signal of where prices will move comes from the price of key commodities, with the recent collapse in lumber highlighting how producers could soon lower prices to reflect this chance in costs. 

What are your thoughts on the US inflation data released and direction for the markets ?

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