Inflation games

Daily update

US June consumer price inflation gave some troubling signals about data quality—not only are fewer prices being measured, there is circumstantial evidence that budget cuts mean more prices are being guessed. However, on the basis of the numbers provided, it is clear that President Trump’s trade taxes are being passed through to US consumers—the monthly increase in consumer appliance prices was the fastest this century.
Will consumers notice? Food prices are rising, but trade taxes have less of an impact there. It is less frequently bought items that are most vulnerable to trade taxes, and lower frequency purchases have less impact on the perception of inflation. This matters politically and economically—perceived inflation may lead to more political pressure on Trump to retreat, or at least not add further to the US consumer tax burden.
US June producer price inflation should indicate the extent to which trade taxes are flowing down the supply chain. The more companies can raise prices, the less profit margins will suffer as trade taxes hit.
UK June consumer price inflation was marginally higher than expected—fuel prices and airfares helped push up the headline number. Service sector inflation is stable. It creates a somewhat murky backdrop for Bank of England policy setting.