US CPI data for August came in lower than expected but still at elevated levels

US CPI data for August came in lower than expected but still at elevated levels

Consumer prices rose at an annual rate of +5.3% but the month-over-month reading was lower than expected. Financial markets reacted by selling the dollar as investors believe the data gives the Federal Reserve room to reduce monetary stimulus at a more gradual pace. The Fed will likely remain in focus as attention will turn to next week’s regularly scheduled FOMC meeting.

Life is like riding a bicycle. To keep your balance, you must keep moving.”

Albert Einstein
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    September 14, 2021

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  • USD

    Core CPI for August gained 0.1% versus the 0.3% expected -- the smallest gain for inflation in 7 months. The news supports the Federal Reserve's view that most inflation pressures are transitory and will subside once prior year comps shift higher and supply bottlenecks are removed. The dollar will likely follow the weakening trend begun during the week of the Fed’s Jackson Hole symposium -- a phenomenon repeated in 8 of the last 10 years.


    Sterling added to overnight gains on the US inflation data. In early London trading, the pound was stronger as the number of workers on UK company payrolls climbed above pre-pandemic levels.


    The euro gained on the dollar after the weaker than expected CPI data in the US. Germany has announced “vaccination week” in a bid to encourage more people to get immunized after their campaign fell behind other European countries. Some regions are stepping up pressure on people by restricting indoor access and stopping compensation for unvaccinated workers if they have to quarantine. Currently 62% of Germany’s population is fully vaccinated.


    The Canadian dollar is stronger this morning despite weaker than expected Manufacturing Sales data for August. The price of oil is higher, in part, due to continued supply constraints in Louisiana and Texas as first hurricane Ida and now Nicholas force production to shut down. Canadian CPI data for August is due out tomorrow where a year-over-year reading of +3.9% is expected.


    The Australian dollar lost ground as RBA Governor Lowe played down the chance of a rate rise before 2024, as well as announcing expectations of GDP to contract during the September quarter.

    The Japanese yen strengthened on overall dollar weakness. Japanese stocks rallied for a third day, with the Nikkei 225 gaining 0.73% to trade at levels last seen during the nation’s bubble-economy in 1990. Japanese vaccination rates now surpass the US and prospects of new leadership boost sentiment.

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Peter Compton
Peter Compton

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