Following a week in which significant employment reports predominated, attention will turn back to inflation data this week. The Consumer Price Index (CPI) for June is expected to be released this Wednesday, following the Producer Price Index on the very next day.
Investors will be watching for signs of weakness that could persuade the Federal Reserve Board of Governors of the United States to abandon its plan to raise interest rates by 25 basis points (bps). Following the Federal Reserve’s decision to pause rate hikes for the first time in more than a year last month, a return to monetary hawkishness would be expected to follow. Although the Fed’s prescription has contributed to a reduction in the CPI from 9% in August 2022 to 4% as of May, it has also raised concerns about an overstep that could throw the economy into a deep recession.
CPI
The Consumer Price Index (CPI) is a widely used economic indicator that monitors and reports shifts in the average prices of a standardized basket of consumer goods and services. In regards to that, this Wednesday, observers of U.S. monetary policy will be monitoring the Labor Department’s release of the June CPI. Ever since last year, when the CPI reached a peak, the index has been going down slowly. This situation has been analyzed by some economists, who have been predicting that this June’s Index will drop between 3% and 4%. However, senior market analyst at Oanda, Edward Moya, noted that only 2.8% is expected to fall, along with the core inflation, which does not include the more volatile costs of food and energy, could stay high because the housing market is so expensive. Moya wrote that price pressures might last through the summer.
PPI
The producer price index is a form of economic indicator that shows how the average prices producers get for their goods and services have changed over time. Different from the Consumer Price Index (CPI), which measures changes in prices from the perspective of consumers, the PPI focuses on prices at the producer or wholesale level.
The PPI dropped to 1.1% annually in May, which was lower than what was expected (a drop of 1.5%) and a big drop from the 2.3% reading in April. Most people think that the reading for June will be 0.4%.
Jobless Claims
The number of people who filed new claims for unemployment benefits during the week that ended on July 8 is expected to be reported by the United States Department of Labor on Thursday of this week. The most recent reports on employment data illustrate very different perspectives on the state of the job market. According to a report that was released by ADP the week before last, businesses added almost 500,000 jobs to the private sector, which was more than double what economists anticipated would happen. The Federal Reserve now has even more justification to employ its more aggressive treatments for inflation after the unexpectedly strong results. A healthy labor market is an indication that the economy is expanding, which is typically the case before an increase in prices. However, an unexpected increase in jobless claims, albeit a small one, on the same day and weak nonfarm jobs report later in the week made the overall picture more complicated. Both of these events occurred on the same day.
