US inflation key ahead of Sept 20 FOMC - ING

As the FOMC meeting looms near (Sept 20), the Economics Team at ING notes that this week's data in the US will be of crucial importance, with the inflation numbers the main event to keep an eye on.

Key Quotes

All key US inflation readings are below the Fed’s 2% mediumterm target, but headline inflation should push higher, thanks to rising energy costs. Gasoline prices rose 25 US cents per gallon between the beginning of July and the end of August and have continued to rise in early September. Dollar weakness is also helping to generate some price pressures, with import inflation nudging higher and PPI following suit.

Core inflation is likely to move a little lower in the near term, but we also think this index will soon be at 2%. With the PCE deflators likely to rise for the same reason, we still see potential for higher interest rates at the December FOMC meeting. September’s meeting will all be about the announcement of the start of the Fed’s balance sheet reduction plan.

Other US data includes retail sales, which should be fairly healthy, given the strength of consumer confidence. However, the headline figure will be held down by some subdued car sales figures. As for industrial production, we will be looking for early signs of hurricane Harvey effects, which impacted output in the Houston region. Any weakness is likely to be temporary though, given the ISM manufacturing index is at very strong levels and the rise in the oil price should help stimulate shale oil output.