Week ahead: US CPI inflation at the forefront of the macro space

In addition to ongoing US trade tariff developments, the key macroeconomic print to watch this week will be the June US CPI inflation data (Consumer Price Index). This follows the better-than-expected June US jobs report, which saw unemployment fall to 4.1% – albeit influenced by a drop in the labour force – and job growth rise to 147,000. However, I must add that the job gains were largely driven by government employment.

Undoubtedly, as I am sure you will agree, investors remain complacent right now, and it is easy to see why. Despite some ‘cracks’, US hard data remains largely unaffected at this point. There has been a limited impact on initial jobless claims (despite continued claims rising, which suggests it is now harder to find a job), and, as shown above, job data is holding up. Furthermore, while inflation has risen, it is not yet sufficient to warrant concern, and retail sales have also remained relatively stable.

While the US economy is starting to show signs of deterioration, I still believe it is too early to determine the impact of tariffs on the economy at this point, and that is unlikely to change with the upcoming June data. Many desks have noted that they are keeping a close eye on subsequent months, where they expect to see a broader impact of tariffs.

Modest uptick in US inflation expected
Economists expect to see a moderate increase in US price pressures in the June report, which will be released on Tuesday at 12:30 pm GMT. At the headline year-on-year (YY) level, the market’s median estimate currently suggests inflation rose by 2.6% from 2.4% in May (estimate distribution between 2.7% and 2.4%), while excluding food and energy items, the YY core measure is forecast to have increased to 3.0%, up from 2.8%. Month-on-month (MM), inflation is forecast to rise by 0.3%, up from 0.1% at both the headline and core levels.

However, while some tariff impact will likely be evident in the June data, particularly on tariff-sensitive goods, such as apparel, it will unlikely be sufficient enough to move the US Federal Reserve (Fed) to act this month. Despite a ‘couple’ of Committee members being open to a rate cut at the next meeting, according to 17-18 June Fed meeting minutes, most of the Committee are cautious.

The recent Fed meeting minutes were interesting in that they emphasised the division seen in the previous meeting, with one half of the camp focusing on possible one-time price increases, and the other side looking more to a longer-term inflationary impact. Of course, the former will be more open to cutting rates, while the latter will want to keep rates unchanged.