US: CPI figures will be closely watched – Lloyds Bank

The focus today will be on US data, in the absence of major UK/European data releases or events as recent soft inflation figures have probably contributed to Fed Chair Yellen’s slightly less hawkish comments in her testimony to Congress this week, explains the analysis team at Lloyds Bank.

Key Quotes

“Today’s US CPI figures for June will therefore be closely watched. Headline CPI fell to 1.9%y/y in May, the lowest for six months. Even the ‘core’ measure, which excludes food and energy, has surprised on the downside in recent months, led by categories such as mobile phone contracts. We have pencilled in a fall in headline CPI to 1.6%y/y, but more focus will be on the core measure where we see a 0.2%m/m rise (in line with consensus), which should result in a slight increase in the annual rate to 1.8% from 1.7%.”

“The other key release is US June retail sales to gauge the likely rebound in consumer spending and general economic growth in Q2. We expect retail sales (control group) to rebound by 0.3%m/m after the flat outturn in May, supported by firmer payrolls growth. US industrial production and the preliminary reading of University of Michigan consumer sentiment are also due.”

“Dallas Fed President Kaplan is scheduled to speak again today, at 14:30BST, while the text of Chicago Fed Evans’ cancelled speech yesterday will be published at 18:00BST.”

“Most attention is likely to be on US CPI inflation today, in particular, the underlying ‘core’ measure which excludes food and energy. As the US inflation figures are adjusted for seasonality, markets pay attention to the month-on-month percentage change, as well as the annual rate. Core CPI had been averaging around 0.2%m/m prior to the softness of the past three months. Both we and the market consensus look for a 0.2%m/m outturn in June, but another undershoot in core inflation would likely reduce the probability that the Fed increases interest rates again in September.”