US core price pressures accelerating again as 'jury still out' on true impact of tariffs on US CPI
Today’s US CPI report provides Federal Reserve officials with plenty to think about. While the surprise miss in the main inflation rate is likely to dominate headlines, core price pressures are accelerating again, rising at the fastest pace since February.
This may suggest that we are starting to see American firms pass on the tariff costs to consumers through higher prices, although businesses appear to be bearing the bulk of the costs for now. It remains early days, however, and the jury is still out as to the full impact of the tariffs on US inflation.
The knee-jerk reaction among market participants to the softer headline number has been to send the US dollar lower.
Yet, today’s data hasn’t changed our view on Fed rates too much. We continue to see a September cut as effectively a certainty, with further easing likely to follow in December. An October cut is possible, but this may be difficult so long as core inflation continues to run above 3%.
Author
Matthew Ryan, CFA
Ebury
Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.
