Will US and UK Inflation Numbers Rise or Fall?

September 13, 2022 10:13

The big question driving sentiment is whether prices will rise or fall in the UK and US and there are two inflation-related trading events with the answer and a possible impact on the USD and GBP coming up this week.

Today, the US is set to release Consumer Price Index (CPI) figures for August. Consumer prices excluding food and energy are expected to have fallen to 5.9 percent in August from 6 percent in the same period last year. On an annual basis, overall CPI is expected to have fallen from 8.5 percent to 8.1 percent in August.

High prices of food and energy have been the main drivers of inflation this year due to supply-side pressures stemming from geopolitical events and a rapid post-COVID pick-up in economic activity. Traders are looking for more signs that inflation is easing in the US following a decline in prices in July.

Even if inflation fell in August, it’s unlikely that the Federal Reserve will change its hawkish course, having made the point in the strongest terms that slowing the pace of interest rate increases might revive inflationary pressures. The Fed’s monetary policy meeting comes up next week, and today’s inflation reading may move the USD currency crosses as market participants price in a higher or lower interest rate hike based on inflation results. The Fed’s interest rate hikes have ranged from 0.5 percent to 0.75 percent in recent months.

The UK releases CPI figures for August on September 14. The market expects inflation to have risen to 10.2 percent versus 10.1 percent previously on an annual basis. Compared to July, inflation is expected to remain unchanged at 0.6 percent. The UK has the highest inflation rate of the G7 countries, and Bank of England (BoE) Governor Bailey said that the economy is heavily exposed to high fuel prices and needs support from the government. This means the BoE’s course of action will depend on fiscal measures from the newly-formed UK government.

In related news, the UK’s Unemployment Rate for the three months ending in July fell to 3.6 percent from 3.8 percent previously, surprising to the upside according to statistics released this morning. Average earnings including bonus for the three months ending in July rose by 5.5 percent on an annual basis, outperforming the consensus of 5.2 percent.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

Sarah Fenwick
Sarah Fenwick Financial Writer, Admirals London

Sarah Fenwick's background is in journalism and mass communications. She has worked as a correspondent covering Swiss Stock Exchange news and written about finance and economics for 15 years.