Inflation In Line with Expectations
Prior Week Summary
Last week was another relatively uneventful summer week that saw very little in the way of interesting economic data points. The updates on the inflation landscape with the releases of CPI and PPI throughout the week were broadly in-line with consensus expectations. The Labor Department reported that consumer prices rose 0.2% in July, bringing the year-over-year increase to 2.9%. Economists had expected an increase of 0.2% and 2.9%, respectively. The core measure of the CPI, which excludes the more volatile components of food and energy rose an impressive 2.9%, which is the largest yearly gain in that metric in nearly a decade. A deeper look at the data suggests that most of the recent gain in core prices was attributable to gains in the cost of housing and a steep rise in the cost of used vehicles.
Gains in producer prices were also broadly in line with economist forecasts, with costs increasing 3.3% on a yearly basis in July relative to an expectation of a 3.4% gain. Excluding the impacts of food, energy and trade, prices increased 0.3% in July, matching the increase in the June survey period.
As of this writing, the market is still largely expecting a hike at the September meeting with roughly 94% odds priced in for a 25 basis point hike according to the CME’s Fedwatch tool.
The Look Forward
The data calendar this week features updates on retail sales, industrial production and consumer sentiment.
Sources: Bloomberg Finance L.P., (Treasuries) Chatham Financial (Swap Curves), FHLB Boston, Chicago, Dallas, Des Moines for FHLB Advance Rates. Wells Fargo Brokered CD Indications.
Market Implied Policy Path (Overnight Indexed Swap Rates)
Source: Chatham Financial
Fixed Income Snapshot
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