Chart of the Week

PRICES PERKING UP

Is US inflation resurfacing just as the Federal Reserve embarks upon rates cuts?

A repeat of the 2021/22 surge in price levels is unlikely, but cost pressures are starting to mount again.

As the chart below shows, the Trump tariffs are now filtering through into loftier producer prices with US PPI coming in higher-than-expected, at 3.3%y/y, in July.

History suggests that headline CPI (dark blue) and core CPI (light blue) rates will soon follow suit.

However, we are unlikely to see a return to the double-digit inflation witnessed at the start of the decade.

Although the tariffs are putting upward pressure on factory gate prices, the general supply chain bottlenecks that dominated the pandemic-era inflation have largely disappeared.

The demand side also argues against a pronounced inflationary shock with the global business cycle struggling to accelerate despite bundles of fiscal support. This is in stark contrast to the consumer boomlet that greeted the end of lockdowns.

In short, near-term US inflation risks are skewed to the upside, but there is little on the horizon to suggest we are on the verge of a major inflationary wave that would spark a series of rate hikes.