Capping inflation

Daily update

Bond markets remain nervous about the Iran war (which potentially impacts inflation and fiscal deficits). Investors hope that market angst might encourage a US policy shift, as it did with tariffs. However, (at the time), tariffs were under US President Trump’s direct control and could be changed on a whim. Middle Eastern politics is a little more complex.
Consumers’ inflation perception is shaped by high frequency purchases like food and fuel, making these politically significant. The UK government asked supermarkets to consider voluntary price caps on basic food items, in exchange for regulatory changes. Supermarkets reacted with hostility, claiming tight profit margins. In March, a 74-pence UK pint of milk included a 54-pence markup post-farm gate.
UK April inflation data was expected to decline, as the (involuntary) electricity price cap was set using pre-war energy prices. However, the overall inflation rate was lower than had been expected. Bank of England Governor Bailey and other policy-makers testify before Parliament today.
The minutes of the April Federal Reserve meeting are due. This meeting was especially divided, and the depth of that division matters as Fed Chair nominee Warsh’s arrival is anticipated. Warsh’s reputation may make leading from the front difficult, and a deeply divided Fed will increase that challenge.