US inflation to rise as higher tariffs feed through
The core consumer price index, regarded as a measure of underlying inflation because it strips out volatile food and energy costs, rose 0.3 per cent in July, according to the median projection in a Bloomberg survey of economists. In June, core CPI edged up 0.2 per cent from the prior month.
While that would be the biggest gain since the start of the year, Americans – at least those who drive – are finding some offset at the gas pump. Cheaper petrol probably helped limit the overall CPI to a 0.2 per cent gain, the government's report on Aug 12 is expected to show.
Higher US tariffs have started to filter through to consumers in categories such as household furnishings and recreational goods. But a separate measure of core services inflation has so far remained tame. Still, many economists expect higher import duties to keep gradually feeding through.
That's the dilemma for Federal Reserve officials who have kept interest rates unchanged this year in hopes of gaining clarity on whether tariffs will lead to sustained inflation. At the same time, the labour market – the other half of their dual policy mandate – is showing signs of losing momentum.
As concerns build about the durability of the job market, many companies are exploring ways to limit the tariff pass-through to price-sensitive consumers. Economists expect government figures on Aug 15 to show a solid gain in July retail sales as incentives helped fuel vehicle purchases and Amazon's Prime Day sale drew in online shoppers.
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'One reason firms are having trouble hiking prices is that households' real disposable income growth has been dismal – running at a third of the pandemic peak. Incorporating payroll revisions, we estimate that real income growth actually contracted in June,' said Anna Wong, Stuart Paul, Eliza Winger, Estelle Ou and Chris G Collins, economists for Bloomberg Economics. 'Yet nominal retail sales were likely robust in July. We caution against equating a strong headline print with resilient consumption.'
Excluding auto dealers, economists have pencilled in a more moderate advance. And when adjusted for price changes, the retail sales figures will likely underscore an uninspiring consumer spending environment.
Among other economic data in the coming week, a Fed report is likely to show stagnant factory output as manufacturers contend with evolving tariffs policy.
A preliminary trade truce between the US and China is set to expire on Aug 12, but a move to extend the detente is still possible. BLOOMBERG
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