- US CPI, China inflation data both on tap this week, keeping markets on edge
- Crude rally could cause new inflation worry for Fed just as US jobs growth ease
- Fed, yearning for 2% US inflation, will decide accordingly with Sept rates
The United States and China both have key inflation data this week, with oil bulls looking for a relatively positive outcome on both sides to extend a six-week rally already looking heavy for crude.
On Thursday, the United States is to release its July reading for the Consumer Price Index, which will show if markets are correct in believing that the Federal Reserve is close to ending its aggressive cycle of interest rate hikes.
The CPI, which expanded 3.0% year-on-year in June for the smallest growth in two years, is expected to have seen a slightly more aggressive expansion of 3.3% in July.
A day before the CPI release, the US will issue its July Producer Price Index data, with core producer prices expected to rise by 2.3% from a year earlier.
The Fed, hoping to bring inflation back to the pre-pandemic level of 2%, has embarked on a year-and-half of monetary tightening that has seen it pile an additional 525 basis points of rates on top of a previous level of just 25.
A lower CPI reading would make Fed policymakers more likely to hold off raising interest rates at their upcoming September meeting after a quarter-percentage-point hike last month.
The Fed’s next rate decision is on Sept. 20, and it has identified runaway jobs growth and correspondingly higher wages as among the reasons for inflation hitting 40-year highs of more than 9% a year in June 2022.
While June’s growth in US jobs was encouragingly smaller compared with May’s expansion of 306,000, wages were still higher than what the central bank desired.
Also, the rally in oil could be a new problem for the Fed if it continues, especially with crude prices having gained almost 20% over the past month and a half.
Crude prices edged down in Asian trade on Monday, ahead of their New York open, but were still near three-month highs.
US West Texas Intermediate, or WTI, crude hovered at $82.61 per barrel by 03:00 ET (07:00 GMT) — down 21 cents, or 0.3%, on the day. On Friday, WTI hit $83.23, a peak not seen since early April, to close the week up 2.8% and added to July’s gain of nearly 16%.
London-based Brent crude was at $86.05 per barrel, down 19 cents, or 0.2%. On Friday, the intraday peak for Brent was $86.64 — the highest since mid-April. The global oil benchmark gained almost 2% last week after running up nearly 14% for July.
The rally in oil saw a renewed boost on Friday after major producers Saudi Arabia and Russia renewed pledges last week to cut approximately 1.3 million barrels per day between them in September,
Suvro Sarkar, the lead energy analyst at DBS Bank, said in comments carried by Reuters that crude prices could remain buoyant this week but were likely to face stiffer resistance.
"We think further upside may be limited and oil prices could consolidate around the $85 a barrel level (Brent) for a while, capped by ongoing concerns about the pace of China's recovery and doubts about how long Saudi and Russia will continue to curb production and exports, respectively, given the spare capacity on hand."
China, meanwhile, is to release trade figures on Tuesday, followed by its own July inflation data on Wednesday, which could show a drop in consumer prices amid concerns over the outlook for the world’s second-largest economy.
China’s economy rebounded strongly in the first quarter after strict pandemic-era curbs were suddenly removed late last year. Still, the recovery has faltered in recent months as demand at home and abroad weakens. Authorities have rolled out a series of policy measures in recent weeks to support the flagging recovery; though details have been scant, investors are expecting more to come.
Bloomberg reported earlier this week that China’s appetite for fuels and other oil-derived products such as plastics may have peaked for this year as economic woes in No.1 oil importers continue to stand in the way of a complete rebound from Covid Zero.
While recent headline numbers for Chinese crude imports pointed to robust oil demand, much of that supply has been stockpiled rather than turned into gasoline and diesel, according to analysts.
This year, the nation’s economic recovery continues to show signs of strain through weak indicators across manufacturing and infrastructure sectors, weighing on the outlook for commodities.
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Disclaimer: This article aims to purely inform and does not in any way represent an inducement or recommendation to buy or sell any commodity or its related securities. The author Barani Krishnan does not hold a position in the commodities and securities he writes about. He typically uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables.