For the past two to three years, the Fed has focused almost exclusively on the inflation fight in first raising interest rates to relatively high levels and then holding them there for almost a year now. Of course, the FOMC monitors the totality of economic data, but inflation has been center stage. The latest numbers from the Consumer Price Index (CPI) report come out tomorrow, and inflation is expected to remain high. The Bank of England’s latest statement talked of “squeezing remaining inflationary pressures out of the economy”, a job that’s not yet done. “The latest data do show that we’ve had atfx broker review considerable cooling in the labor market,” Powell said. “We’re very much aware that we have two-sided risks now. …We’re determined to balance those as best we can.” Chair Jerome Powell told lawmakers in both chambers this week that the Fed is increasingly aware of the risks the fight against inflation poses to the labor market.
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The information contained within should not be a person’s sole basis for making an investment decision. UK CPI has fallen from 4% in January to a low of 1.7% in September, a trajectory that has encouraged the Bank of England to cut rates from the peak of 5.25%. In his current role at Kiplinger, Dan writes about equities, fixed income, currencies, commodities, funds, macroeconomics, demographics, real estate, cost of living indexes and more. There’s more, How to buy dent but the bottom line is that the Fed believes the PCE index has some critical advantages over CPI when it comes to formulating monetary policy. That said, CPI is the better known inflation gauge and is probably more relatable to what consumers experience in their daily lives. There’s also the fear that elevated rates could cause the economy to fall into a recession.
- For the closely-watched “core” CPI inflation, which strips out volatile food and energy costs, economists expect an annual rate of 3.2%, just a tick down from 3.3% in June.
- The PPI, although closely watched because it shows how inflation is trending upstream of the consumer, typically plays second fiddle to CPI and lands a day after its retail-level counterpart.
- Federal Reserve officials will be closely looking at the inflation data, and at least one central banker said this weekend she still isn’t confident that inflation is moving lower.
- If that were to happen the large weight to shelter within the CPI could help get inflation back on track toward the FOMC’s 2% target.
- The CPI for July is expected to show “that the disinflation process continues, and that it remains on track,” Lydia Boussour, senior economist at EY-Parthenon, told CNN in an interview on Monday.
According to FactSet consensus, the headline Consumer Price Index rate is forecast to have nudged up last month to 2.2%, from 1.7% in September. This would move inflation back above the Bank of England’s official 2% target in what will be the penultimate inflation measurement of the year. Given inflation’s trajectory and what Boussour sees as a gradual slowdown in the economy, she’s projecting three quarter-point rate cuts from the Federal Reserve to close out the year and another 1.25 points of cuts in 2025. The biggest piece to watch will be shelter inflation, which has long been the outsized contributor to high inflation. However, shelter inflation has slowed in recent months and the CPI’s measurement of housing-related prices (a lagged and amorphous process that includes estimating the rental value of owner-occupied homes) is now starting to better reflect the slower rent hikes seen in real life. PPI serves as a potential bellwether for retail-level inflation in the months ahead.
In its February survey of consumers, the New York Fed found that while respondents held to their one-year outlook for inflation at 3%, their expectations at the three- and five-year horizons accelerated to 2.7% and 2.9% respectively, both well ahead of the central bank’s 2% target. The prediction market Kalshi pegs July CPI at a 2.9% annual rate currently, this also suggests the July’s CPI report should continue the disinflation trend in the U.S.. Consumer prices likely continued to fall in June, if forecasts are correct, keeping inflation on a path toward a level that could give the Federal Reserve confidence to cut interest rates this year. It’s possible that the headline CPI reading could move higher than anticipated for July, likely reflecting that gas prices are no longer the drag they were in May and June, Boussour said. However, she noted that food prices should remain fairly tame and should help to counter the increase on the energy side.
That sets the stage for an even more crucial reading on price hikes due out Wednesday. A long-time financial journalist, Dan is a veteran of SmartMoney, MarketWatch, CBS MoneyWatch, InvestorPlace and DailyFinance. He has written for The Wall Street Journal, Bloomberg, Consumer Reports, Senior Executive and Boston magazine, and his stories have appeared in the New York Daily News, the San Jose Mercury News and Investor’s Business Daily, among other publications. As a senior writer at AOL’s DailyFinance, Dan reported market news from the floor of the New York Stock Exchange and hosted a weekly video segment on equities. Per the BLS, prices for the goods and services used to calculate the CPI are collected in 75 urban areas throughout the country and from about 23,000 retail and service establishments. The weight for an item is derived from reported expenditures on that item as estimated by the Consumer Expenditure Survey.
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Economists expect that prices across a broad spectrum of goods and services rose 0.4% on the month, just ahead of the January pace for 0.3%, according to the Dow Jones consensus. Excluding food and energy, the increase for core inflation is forecast at a 0.3% gain, also one-tenth of a percentage point above the previous month. With a weaker April jobs report and inflation running at more moderate levels, the FOMC is starting to watch employment data more closely. It could be that a softening jobs market provides the impetus for interest rate cuts, even if inflation is not as close to the Fed’s 2% annual target as desired. Therefore, though inflation figures will be closely watched, jobs reports may gain more attention from the FOMC. July’s Consumer Price Index inflation report is expected to continue the pattern of disinflation seen in recent months.
The latest inflation numbers come out tomorrow and it’s expected to remain high—here’s what to know
Those estimates, should they hold, broadly equate to 2% to 3% annualized inflation. As such, it is unlikely that July’s inflation report will concern the FOMC, and maintain the overall narrative that inflation is returning to lower levels, albeit perhaps slower than the FOMC would like. However, it’s also expected to show a cooling of “core” inflation, an important measure that excludes prices forex trading guide and forex broker reviews for food and energy, and which is closely watched by central bankers at the Federal Reserve who set the nation’s monetary policy. The forecasts are for CPI to rise 0.2% from June, likely pushed higher by rising gas prices, and hold steady at 3% annually, according to FactSet estimates.
That’s only slightly less than September’s 8.2%, and well above the Federal Reserve’s target rate of 2%. Forecasts expect it to barely dip below the 8% year-over-year rate it’s been floating above since March.