Inflation is still problematic, supporting real rates


There is still an inflation problem. The CPI y-o-y increased at a decreasing rate in the latest release - 8.5% vs last month's 9.1% (blue line chart). However, this masks underlying concerns. First, outliers affect the print in a data series like the CPI. I.e. the goods within the basket that show extreme movements may exert an overall influence, e.g. energy and food.

Energy printed a monthly increase of 4.6%, down from the 7.5% rise in June. But what about the rest of the basket in the inflation calculation? Therefore, it will be instructive to consider a median CPI print (black line chart). Here, we look dead centre, and outliers exert no undue influence. Moreover, it gives a better view of the stickiness within the CPI basket.

The latest number out of the Federal Reserve Bank of Cleveland shows an increase in the median series to 6.3% y-o-y (red leg of black line chart), with no signs of a slowdown. The resiliency of this series will impact Fed monetary policy because, at some point, it will impact the headline inflation numbers, both CPI and PCE.

If the median inflation shows moderation, the Fed's job inherently becomes easier. I.e. the sticky inflation will be responding to the monetary policy transmission mechanism. As such, this is a critical metric to keep an eye on.

Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

${} / ${getInstrumentData.ticker} /

Exchange: ${}

${} ${getInstrumentData.divCcy} ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%) ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%)

${getInstrumentData.oneYearLow} 52/wk Range ${getInstrumentData.oneYearHigh}

Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed here.

Past Performance: Past Performance is not an indicator of future results.