14, September 2017

US Inflation In Focus

Inflation is the main focus this week. On Wednesday, the US Labor Department said its producer price index rose by 0.2 percent in August, recovering from a previous month decline of 0.1 percent. Year over year, the index showed a 2.4 percent advance, up from a prior 1.9 percent.

While last month’s PPI came in below expectations for a 0.3 percent build, prices managed (at least) to keep growing, which nowadays is one of the key issues concerning policymakers.

The Federal Open Market Committee has more than once emphasized that to move forward with its monetary policy normalization plan, strong market conditions and sustainable inflation growth are required. Otherwise, the economy would not received changes adequately.

In that regard, FOMC members have expressed different opinions. The latest Fed meeting minutes showed divided waters over the matter, with some policymakers claiming that the regulator should avoid further policy adjustments this year, while others warned about the risks of stopping the ongoing plan to raise interest rates and unwind Fed’s massive balance sheet.

The Core PPI, which excludes volatile components such as food, energy and trade services, increased by 0.2 percent last month and 1.9 percent in yearly terms.

So what’s ahead?

As the September 19-20 Fed meeting approaches, investors get more anxious about the rhetoric Chairwoman Janet Yellen will choose to address the future of monetary policy.

There are basically no expectations for an interest rate move this month, with all looks currently pointing at December. However, Fed funds tracked by CME Group’s FedWatch tool show that investors are pricing in a mere 40 percent probability of a rate hike by the end of the year.

Ahead in today’s session, attention will be directed to consumer inflation data. The consumer price index is due as of 12:30 GMT, with analysts predicting a 0.3 percent increase.

If the report comes in above forecast, we could see a rebound in expectations for monetary changes and (of course) a strong support to the US dollar across the board.