US Inflation is higher than it looks in the headlines

Consumer prices in the USA maintain an alarmingly high increase. Prices for July added 0.5% (as expected) and the annual rate was maintained at 5.4%, contrary to forecasts of a decline to 5.3%.

Food prices (+0.7% in July after 0.8% in June and 3.4% yoy), as well as energy prices (2.3% in July after 2.6% in June and 41.2% yoy), contributed to the price increase.

The core index, which excludes both of these volatile components, added only 0.3% MoM after 0.9% MoM and slowed to 4.3% YoY. But the current increase in core prices also ranks in the top 10% of the last 20 years, so it is still too early to say that increased inflation has become a thing of the past.

In a moment the markets reacted to the formal inflation undershoot, which caused an increase in buying of equities and selling of the dollar. But at the same time, prices have risen broadly, pointing to entrenched inflationary trends that the Fed needs to tackle if it wants to preserve its reputation. And that means it is worth being cautious about selling the dollar for now.

The FxPro Analyst Team