Will US consumer prices continue to rise at a rapid rate?

Will US consumer prices continue to rise at a rapid rate?

US inflation is expected to remain high in June, adding to signs that labor shortages, rising commodity prices and the end of social restrictions are contributing to higher inflation.

Consumer prices in June, which will be released by the Bureau of Labor Statistics on Tuesday, are expected to have risen 4.9% from the same month a year ago, according to a Bloomberg survey of economists.

Inflation was higher than expected in May as consumer prices rose 5%, the largest annual increase in nearly 13 years. The jump fueled investor speculation that the Federal Reserve would be forced to raise interest rates ahead of its current schedule.

Business leaders have continued to report sharp price increases, according to a series of surveys closely watched by the Institute for Supply Management. Prices paid by manufacturing companies are rising faster than at any time since 1979, with prices paid by service companies increasing to unprecedented levels in 2008, the data shows.

The bargaining power of workers, as the need to hire staff quickly in the service sector gives job seekers the edge, “is going to be an important indicator of the inflation debate,” said Ryan Detrick, Chief Markets Strategist at LPL Financial.

If wage growth accelerates, it “will add to inflationary pressures which will likely lead to an earlier policy response from the Federal Reserve,” added James Knightley, chief international economist at ING. Matthieu rocco

Are investors underestimating UK inflation?

UK investors’ firm belief that this summer’s inflation surge will be transient should be put to the test again this week with the release of June inflation data.

Wednesday’s Consumer Price Index will provide the latest insight into the price ripple effects of the UK’s rapid economic rebound as coronavirus lockdowns are lifted, and the accuracy with which the market has forecast these price increases.

Signs have already emerged that investors may have underestimated inflation. May’s reading of an annual increase of 2.1% was higher than economists’ forecast of 1.8%. Economists forecast an annual increase of 2.2% for June, according to a Reuters poll.

However, after growing inflation fears initially pushed the yield on 10-year gilts from below 0.2% at the end of last year to around 0.9% in May, investors recently braced themselves. to consult the data.

“There isn’t a lot that we can all buy” as the economies reopen, said Ahmer Tirmizi, senior investment strategist at Seven Investment Management. “In other words, we think the rise in inflation will be transient.”

The Bank of England said at its last policy meeting last month that even if inflation was “likely to exceed 3%”, it would fall back later and should not affect monetary policy.

For now, investors seem ready to take the central bank at its word.

“Governor [Andrew] Bailey stressed that they would only react if inflation proves to be more persistent than expected. It is obviously far too early to assess this now, ”said Sushil Wadhwani, chief investment officer of QMA Wadhwani and former member of the bank’s monetary policy committee. Laurence Fletcher

Is China’s economic recovery running out of steam?

Investors and traders will be watching China’s GDP data closely on Thursday for any signs of slowing the country’s growth rate following a sharp pick-up in the economic effects of the pandemic.

Economists polled by Bloomberg expect the Chinese economy to grow 8% in the second quarter year-on-year, after growing just 3.2% in the same quarter last year.

In the first quarter of 2021, the Chinese economy grew 18.3% year-on-year, but the unusually large increase was due to a weak base in early 2020 due to the pandemic. In quarterly terms, gross domestic product grew only 0.6%, well below expectations.

Since a historic contraction in its economy early last year, China has embarked on an industry-fueled recovery. By the end of 2020, its rate of growth had exceeded pre-pandemic levels, far surpassing other major economies, which continue to face high infection rates.

Economists have anticipated a shift to greater consumption as the Chinese recovery continues. The data, also released on Thursday, is expected to show retail sales growth of 12% year-on-year.

Larry Hu, chief economist for China at Macquarie, said China’s growth pattern in the first half of the year was “very different from that of the past decade, as it is driven more by exports than by investment.” .

He added that exports may have already peaked and growth may continue to slow in the second half of the year due to tighter credit conditions. Separate official data, which will be released on Tuesday, will show export growth in June compared to the previous year, with economists forecasting a 22% increase. Thomas hale