Week ahead: US & UK bite into meaty inflation data

Inflation is the focus this week. CPI reports are at the top of the agenda, gauging inflation statements in two key global economies. They may be on similar paths but there are some key differences between US and UK inflation data. We’ll see more in the week ahead. 

US Consumer Price Index data is the week’s key release. With talk of tapering on the agenda in coming months, the Fed will no doubt be keeping a close eye on Tuesday’s CPI numbers – as will the markets at large. 

After July’s CPI inflation of 5.4%, a 13-year high, market observers will be hoping the US has reached peak inflation. Indeed, there are some indicators that this may have been the case. 

For example, core CPI rose 4.3% on an annualised basis in July after advancing 4.5% in June.  

The same incremental drops were seen in other key areas.  

Prices for cars and trucks, something which took up a significant chunk of the US’ recent inflation boost, rose 0.2% in July against 10.2% in June, for instance.  

Excluding the volatile food and energy components, the CPI rose 0.3% after increasing 0.9% in June. That was the smallest gain in four months and the first deceleration in the so-called core CPI since February. 

So, the signs are there but with weaker jobs growth pulling the US away from some of its tapering targets, this week’s CPI report has double importance. Markets have continued to price in inflation, and there’s no real indicator that the Fed sees the current high prices as anything but transitory. 

The important thing to watch with this week’s CPI data is any more measurable month-on-month drops to back up this claim.  

Interestingly, US retail sales dropped at a faster rate than expected in July – possibly due to higher consumer good prices. We’ll see August’s US retail stats when the report lands on Thursday.  

Along with high prices, there has been a general shift away from consumers purchasing goods. Instead, they’re looking for services and experiences.  

It makes a bit of sense when you look at it. Millions of Americans have spent the past 18 months cooped up inside. Given lockdowns are fading away in America, it stands to reason that shoppers are less concerned with retail therapy and want to go out and enjoy life again. 

Other aspects like supply chain issues affecting product availability have also impacted the drop off in retail numbers. Vehicle sales in particular have taken a dent thanks to a worldwide shortage of computer chipsets integral to modern vehicle manufacturing. 

Overall sales fell 1.1% in July. However, there are still some reasons to be optimistic about US retail. They are actually up 17.2% on pre-pandemic levels. Household incomes are rising too, which may feed into better performance – although if inflationary prices stick around for longer than anticipated, month-on-month drops may continue. 

Sticking with inflation, the UK’s own CPI data comes this week too. Inflation, a tax rise, and slowing growth are not exactly the ideal ingredients for a health UK economy, but the week’s release concerns the state of play prior to Rishi Sunak’s proposed tax hike. 

July’s figures surprised some. CPI inflation reached 2.0% in the 12-months up to July – the first time it had dropped back to the Bank of England’s target level. For context, the forecast level was 2.3%. June CPI inflation rate was also measured at 2.5%. 

While the BoE will be happy that inflation trended downwards in July, it will have to be cautious that this wasn’t just a blip.  

There are some signals that this isn’t the start of CPI inflation solidifying around the 2% mark. Factory input and output costs rose fairly significantly in July, for instance (9.9% rise in input, 4.3% rise in output). 

Some of the more hawkish members of the BoE monetary policy committee are angling to raise rates if inflation proves more than transitionary.  

Michael Saunders, part of the BoE council, recently said “If the economy continues to recover, and inflation shows signs of being more persistent, then it might be right to think of interest rates going up in the next year or so. But that is not a promise and depends on economic conditions.” 

We’ll see the lay of the land when the UK CPI figures for August land this week. 

Major economic events 

Date  Time (GMT+1)  Asset  Event 
Tue 14-Sep  1.30pm  USD  CPI m/m 
  1.30pm  USD  Core CPI m/m 
       
Wed 15-Sep  7.00am  GBP  CPI y/y 
  1.30pm  CAD  CPI m/m 
  3.30pm  OIL  US Crude Oil Inventories 
  11.45pm  NZD  GDP q/q 
       
Thu 16-Sep  2.30am  AUD  Employment Change 
  2.30am  AUD  Unemployment Rate 
  1.30pm  USD  Core Retail Sales m/m 
  1.30pm  USD  Retail Sales m/m 
  3.30pm  GAS  US Natural Gas Inventories 
       
Fri 17-Sep  7.00am  GBP  Retail sales m/m