Powell’s Future Could Depend on How Long Inflation Lasts
August 10, 2021
Wall Street ends small, the Dow Jones and S&P 500 grab another record
August 13, 2021Updates with more comments
NEW YORK, Aug 11 (Reuters) – U.S. consumer price increases slowed in July but inflation overall remained historically high amid continued supply-chain disruptions and stronger demand for travel-related services as economic activity rebounded.
The consumer price index increased 0.5% last month after climbing 0.9% in June, the Labor Department said on Wednesday. In the 12 months through July, the CPI advanced 5.4%. Excluding the volatile food and energy components, the CPI rose 0.3% after increasing 0.9% in June.
The so-called core CPI rose 4.3% on a year-on-year basis after advancing 4.5% in June. (Full Story)
MARKET REACTION:
STOCKS: S&P e-mini futures ESc1 erased the day’s losses to trade modestly higher and were last up 0.16%, pointing to a strong open on Wall Street.BONDS: Yields on benchmark 10-year notes US10YT=RR edged lower to 1.3422%. Two-year Treasury yields US2YT=RR fell to 0.2305%.FOREX: The dollar index =USD fell after the data and was last down 0.099%.
COMMENTS:
STEVEN RICCHIUTO, U.S. CHIEF ECONOMIST, MIZUHO SECURITIES USA LLC, NEW YORK
“Certainly, the numbers show you more deceleration (of inflation).”
“The big thing here was the drop in non-food, non-energy commodities. Basically a lot of the tradable goods went from 2.2% to 0.5%. Still a healthy number, don’t get me wrong relative to what we’ve been seeing, but certainly adds to the argument that this has been or will be a transitory move in inflation, or a temporary move in inflation, even though the Fed appears to have gotten cold feet and is sticking to its guns.”
“This number is going to put the Fed in a little bit of a quandary because they’ve gone out with all this rhetoric about tapering, about tightening rates, about being defensive and the inflation numbers aren’t quite where they should be, but they’re certainly not showing that this thing is out of control.”
GENNADIY GOLDBERG, INTEREST RATE STRATEGIST, TD SECURITIES, NEW YORK
“Markets are reacting with a bit of relief, which I think makes a lot of sense. The more moderate rise in rents and in OER should help push back on the narratives that the Fed is going to be hiking rates sooner rather than later, so it certainly helped moderate the inflation narrative in the near term, which is why I think the (Treasury yield) curve is bull steepening after the report.”
“At the end of the day this is a more moderate reading than expected, especially on the core, and that was driven by rents and rents were the big worry…if rents began to accelerate then you’d certainly see some concern, but it doesn’t seem that that’s coming at the moment and I think that’s going to make the Fed a little bit more confident that they can let inflation run a little bit hotter in the near term without having to worry about overshooting and having to tighten rather quickly to cut off inflation.”
MICHAEL BROWN, SENIOR ANALYST, CAXTON, LONDON
“Inflation looks to be as ‘transitory’ as the FOMC have been telling us that it will be. The YoY data is distorted so should be set to one side, but both headline and core measures rolling over on an MoM basis certainly supports the idea that June was the peak for price pressures, and that inflationary forces should continue to ease from here on in for the remainder of the year.”
“Market reaction rather modest, though as one would expect on a cooler than expected print. A slight dip in yields, dip in the dollar, and gains for equities a sign of markets modestly pushing back their taper timeline. Though, in truth, this print was broadly what the FOMC were expecting, and is unlikely to change their thinking; the “substantial further progress” on inflation has been made, the labor market is the one to watch now.”
PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK
“These are still fairly hot numbers, but the core came in lower than the topline and the market will like that.”
“As far as the equity market’s concerned, it’s a positive number.”
“If you look at the year to year core CPI, that’s still very high. Month-on-month it’s better than expected but is the inflation scare over, not by a long shot.”
JACK ABLIN, CHIEF INVESTMENT OFFICER, CRESSET CAPITAL MANAGEMENT, CHICAGO
“It fits the Fed’s narrative and they can pretty much stand pat on their current strategy. Certainly, the Jackson Hole meeting will be a risk, we will hear more on that front that the CPI in particular, maybe not with wages, but with the CPI is a little pressure relieved on that tension.”
“This is one data point that does include the Delta variant spike, the jobs report didn’t. This offers some early clues as to what consumer preferences are, perhaps. What I conclude is that Americans are still willing to go out but they are pulling back a little.”
“What we are seeing is a reduction in the increase. The change in the change is falling. Obviously it is one data point but this is the first series that at least has a glimpse of the Delta variant.”
(Compliled by the global Finance & Markets Breaking News team)
(( [email protected] ; @SaqibReports; +1 646 223 6054; Reuters Messaging: [email protected] ))
(c) Copyright Thomson Reuters 2021. Click For Restrictions – https://agency.reuters.com/en/copyright.html
