Rolling the inflation dice

Daily update

Today's US July consumer price inflation data will be less precise than in the past. There are more gaps in the data, and those gaps are filled by (educated) guesswork. Blunting consumer price precision will not impact markets however—investors are straining to second-guess what the Federal Reserve will do with policy. The reaction to a single weaker employment report shows the potency of any data release at the moment.
The consensus is for a fairly benign inflation picture—core inflation at 2.5% y/y. Absent the war, that figure would likely be at or near 2% (core inflation has embedded energy in freight costs, air fares, etc.). One year on, tariff effects should add less to the inflation rate. Consumers' inflation perceptions will still not match reported inflation—things like fictional housing price measures do not affect reality but do affect data, and consumers overweigh the importance of items like gasoline.
Markets’ optimism bias about the oil price seems to be suffering. Pointedly upbeat comments from Pakistan about a possible US-Iran deal have failed to make a difference.
Some final consumer price inflation data points from parts of the Eurozone will be ignored. The Japanese yen has continued to drift back toward fair value following the intervention.