US CPI inflation on the money, futures higher

Dow futures rallied and pointed to a solid opening for Wall Street after another hot inflation print. Inflation remains elevated but the print did not exceed already lofty expectations. Dow being called to open up about 50-60pts, with the S&P 500 seen opening up around 4,442. US 10yr yields slipped and now trade a shade under 1.36%, gold moved up on the print to $1,745 from $1,735, whilst the dollar was offered on the news with EURUSD back to 1.1750 area having tested the YTD lows earlier in the session, before paring gains.

Increasing sense that inflation is here to stay but we’re not sensing the Fed is getting more angsty just yet, so allowing gold to climb. Indeed if anything, deceleration in price growth allows the Fed to take a slower route to the taper, so risk is finding some bid. Elsewhere the bid for equities filtered through to the FTSE 100, which hit a new HOD above 7,200, marking its strongest intra-day level since the pandemic struck.

Headline inflation was pretty much on the money and steady at 5.4% year-on-year, with prices advancing 0.5% in July vs the +0.9% whopper in June. Core month-on-month was down to +0.3% from the +0.9% in June and a little light of expectations for +0.4%. It was the smallest rise in four months. Shelter, food, energy, and new vehicles all increased in June, but used vehicles were a lot cooler at +0.2% vs the +10% we have seen in two of the previous three months. According to the BLS, the deceleration in the used cars and trucks index was a major factor in the smaller monthly increase in the index for all items less food and energy.

Some signs of recovery in pandemic-affected industries and pointing arguably to the kind of staffing and wage pressures felt in the hospitality sector as the food away from home index rose 0.8% in July, its largest monthly increase since February 1981. Ultimately, I would not see this as a narrative-changer for the Fed and the timing of its tapering. Of course, there is ever-present problem for the Fed in trying to balance employment with inflation – real wages, which are declining. Most people have a job, so most people are seeing their purchasing power eroded. What price jobs, jobs, jobs? Real average weekly earnings were -0.1% month-on-month vs -0.9% in Jun, though this was revised to -0.5%.