Inflation in the US is falling slower, labor market weakens

Yesterday’s data from the US was not particularly optimistic. Inflation is declining slower than expected. Moreover, there are significantly more claims for unemployment benefits than anticipated. Readings from Europe did not disrupt the markets.

Inflation, however, less down

Yesterday we learned about price increases in the US. Contrary to expectations, the annual inflation did not drop from 2.5% to 2.3%, but remained at 2.4%. It’s worth noting that unfortunately, core inflation increased from 3.2% to 3.3%. This confirms the observation that falling oil values largely accounted for the recent slowdown in the rate of price growth. Over the year, it has depreciated by 8.5%. The problem is that this reduction was quite uneven and in a few weeks, we will refer to significantly lower prices. As a result, this pressure to reduce consumer inflation will be much weaker. The market reacted with a mild strengthening of the dollar, as the decline is slower than expected.

Weaker labor market data

The gentler reaction was also due to the fact that at the same time, data from the labor market appeared. Within a week, 258 thousand new claims for unemployment benefits were received. This is 29 thousand more than expected. In theory, a difference of a few dozen thousand on such data (i.e., just over 10%) may seem insignificant. However, it is worth noting that there has not been such a high result in the last year. We last saw such levels in August 2023. Investors closely monitor labor market data, so it’s no surprise that this reading almost sunk all the positive impact that slower falling inflation and pushing back interest rate cuts had on the dollar.

Data from Europe

This morning we received a package of data from Europe. Consumer inflation in Germany, as expected, dropped from 1.9% year-on-year to 1.6%. An important fact is that prices did not change on a monthly basis. Readings from the British Isles were quite ambiguous. On the one hand, quarterly GDP change and industrial production performed worse. On the other hand, industrial processing is clearly dropping. This data turned out to be quite neutral in the market and the pound remained at similar levels as before the publications.

On the macroeconomic data calendar, pay attention to:

14:30 – US – producer inflation,

14:30 – Canada – labor market situation.

Maciej Przygórzewski – chief analyst at InternetowyKantor.pl