US CPI July Preview: No upward pressure without tight job market and rising consumption

Consumer prices are forecast to stabilize in July following the pandemic collapse in March and April and the partial recovery in the three months since. Notwithstanding, CPI and PCE have not been a major policy or market concern since the financial crisis as in the economic order jobs come first, then consumer demand and last, inflation, FXStreet’s analyst Joseph Trevisani briefs.

Key quotes

“The core CPI rate is forecast to dip to 1.1% in July which would be the lowest for this price measure since February 2011. The monthly core rate is expected to be unchanged at 0.2% after three months of deflation at -0.1% in March, -0.4% in March and -0.1% in May.”

“The headline inflation rate is projected to rise by 0.3% in July after June’s 0.6% gain. The closure of most of the US economy forced all CPI prices into deflation at -0.4% in March, -0.8% in April and -0.1 May. The yearly rate should rise to 0.8% from 0.6% in June. This measure of prices fell from 2.5% in January to 1.5% in March, 0.3% in April and 0.1% in May for the lowest reading since -0.1% in March 2015.”

“Inflation will not return to its pre-pandemic range until consumer spending stabilizes. Crashing and rebounding sales cannot provide the security for business planning that is a necessary condition for hiring.” 

“Inflation is a distant third in central bank proprieties. Flooding the economy with cash and credit will not raise prices unless people are working and spending. Markets know this and that no CPI or PCE result will change Fed policy. When that link is if broken, inflation is no longer a relevant statistic for trading.”