7/14 - Weekly Economic Highlights

This week, market participants were focused on inflation and associated implications for monetary policy. The June Consumer Price Index (CPI) came in slightly below expected, with the headline CPI up 0.2% month-over-month and 3.0% year-over-year, decelerating from 4.0% year-over-year in May. The Core CPI, excluding food and energy, was also up 0.2% from May and increased 4.8% year-over-year, down from 5.3% last month.  The monthly core increase was the lowest since August 2021, and the 12-month increase was the lowest since October 2021. Shelter was the largest contributor to the Core CPI gains, with the 7.8% year-over-year shelter price increase accounting for two-thirds of the Core CPI advance.

The Producer Price Index - Final Demand (PPI) also came in below expectations and decelerated from last month. The headline index rose 0.1% both on the month and year-over-year, with the 12-month rate at its lowest since August 2020. Excluding food and energy, the PPI-Final Demand rose 0.1% on the month, for a 12-month gain of 2.4%. The Core index, which also excludes trade services, increased 0.1% on the month, and slowed down to 2.6 % from 2.8% year-over-year. Services continued to lead the gains in June.

The University of Michigan Consumer Sentiment Index surprised to the upside at 72.6 in the preliminary July report, up 8.2 points from the prior month. The increase represents stronger perceptions of both current conditions and future expectations. The one-year inflation expectations measure rose slightly to 3.4% in July, versus 3.3% in June. The five-year inflation expectations measure rose to 3.1% in July, versus 3.0% last month. Minimal changes in the July readings indicate that inflation expectations remain anchored.

Also this week, the Bank of Canada raised its policy interest rate by another 25 basis points to 5.00% in order to bring elevated inflation back to target. The move was widely expected and followed a surprise 25-basis point rate hike last month and a "conditional" pause in April and March. The market expects the Federal Reserve to follow a similar course of action and raise the federal funds rate by 0.25% following the pause at the June meeting. The Chandler team believes this outcome is likely, which would result in a range of 5.25% to 5.50%. This week’s data confirms the slowing momentum in inflationary pressures and should be a welcome trend for the Federal Reserve to consider at their upcoming July 26th meeting.
  
Decelerating inflation resulted in lower US Treasury rates this week. The rally in rates moderated today with strong consumer confidence data and better than expected earnings reported by JP Morgan, Wells Fargo, and Citigroup. Over the week, the 2-year US Treasury declined approximately 23 basis points to 4.72%, the 5-year fell 36 basis points to 4.00%, and the 10-year dropped 27 basis points to 3.79% as of this morning.

Next Week:

Empire Manufacturing, Retail Sales, Industrial Production, Capacity Utilization, Housing Starts, Building Permits, Jobless Claims, Existing Home Sales, Conference Board Leading Index, Philadelphia Fed Business Outlook

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