Daily update
Daily update
- Eurozone final May consumer price inflation is very unlikely to change from the initial report. At 2.6% y/y, the rate is above the ECB’s target, but rate cuts are still justified. Inflation has fallen eight percentage points from its high. The impact of that on real interest rates is significant.
- The Eurozone data offers some parallels to the US, where harmonized inflation has also fallen eight percentage points from its high—though in the case of the US, it is now below 2% y/y. So why has the Federal Reserve not cut rates? Perhaps because Fed Chair Powell’s 2022 policy errors (coinciding with the peak of interest rates) placed too much emphasis on the politically important but economically dubious headline consumer price measure.
- US retail sales numbers are due, and US consumers should continue to spend money they do not have on things they do not need. However, anecdotal evidence suggests US consumers are more price sensitive, and refuse to spend in the face of price increases.
- US industrial production data is rarely a major market mover as the global importance of US manufacturing has declined over time. Nonetheless, with trade data offering some conflicting signals, it is helpful to get some sense of what is being made, and where.
