- Prior was 8.3% y/y
- m/m reading +1.3% vs +1.1% expected and +1.0% prior
- CPI index at 296.311 vs 292.296 prior
- Full report
Core CPI:
- y/y 5.9% vs 5.7% expected and 6.0% prior
- m/m 0.7% vs +0.6% expected and +0.6% prior
Details:
- CPI energy +7.5% vs +3.9% prior
- Gasoline +11.2% vs +4.1% prior
- New vehicles +0.7% vs +1.0% prior
- Used vehicles +1.6% vs +1.8% m/m prior
- Owners’ equivalent rent +0.6% m/m vs +0.6% prior
- Food +1.0% vs +1.2% prior
- Real weekly earnings -1.0% vs -0.7% m/m prior (revised to -0.9%)
Inflation
Inflation
Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply in relation to the wealth produced (measured with GDP). As such, this generates pressure of demand on a supply that does not increase at the same rate. The consumer price index then increases, generating inflation.How Does Inflation Affect Forex?The level of inflation has a direct impact on the exchange rate between two currencies on several levels.This includes purchasing power parity, which attempts to compare different purchasing powers of each country according to the general price level. In doing so, this makes it possible to determine the country with the most expensive cost of living.The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates on the forex market.Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on foreign exchange. Conversely, inflation that is too low (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the forex market.
Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply in relation to the wealth produced (measured with GDP). As such, this generates pressure of demand on a supply that does not increase at the same rate. The consumer price index then increases, generating inflation.How Does Inflation Affect Forex?The level of inflation has a direct impact on the exchange rate between two currencies on several levels.This includes purchasing power parity, which attempts to compare different purchasing powers of each country according to the general price level. In doing so, this makes it possible to determine the country with the most expensive cost of living.The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates on the forex market.Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on foreign exchange. Conversely, inflation that is too low (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the forex market.
Read this Term is running hot. This is the highest reading since November 1981. The Fed funds futures market has quickly priced in a 23% chance of the Fed hiking 100 bps in two weeks.
The details are important here. The CPI energy index rose 7.5% in the month, contributing nearly half of the total increase. Energy is up 41.6% y/y. Given where gasoline prices currently are, those numbers will reverse in July.
Otherwise, the vehicle component is worrisome as it remains high and rents continue to creep up. I’d be a bit more dismissive of the report if it was more food-driven but there are a few components pushing it upwards. Used cars are particularly surprising because the Manheim used car index was lower in the month.
On headline shock alone, “above 9%” isn’t pretty for main street and the Fed will have a hard time softening its stance.
www.forexlive.com