Wall Street is bracing for two closely watched US inflation reports this week, as investors assess whether persistent price pressures will prompt the Federal Reserve to raise interest rates before the end of the year.
The Producer Price Index (PPI), which tracks the prices received by businesses and can indicate future pressure on consumer costs, is due on Thursday, September 10. The Consumer Price Index (CPI), measuring what households pay for goods and services including food, clothing, travel and restaurant meals, will follow on Friday, September 11.
The figures will provide the clearest update yet on the direction of inflation ahead of the Federal Reserve’s next decisions on monetary policy. Consumer prices rose 3.4 per cent in the year to July, while core inflation, excluding food and energy, stood at 2.5 per cent.
Energy costs have become a major source of concern. The conflict between the United States and Iran has disrupted shipping through the Strait of Hormuz, a crucial route for global oil supplies, pushing up fuel and transport costs and adding to the price of imported goods.
The Federal Reserve has also warned that tariffs imposed by the United States and retaliatory measures by trading partners could feed through to prices. Businesses facing higher costs may pass them on to consumers, increasing pressure on household budgets.
Inflation remains well above the central bank’s 2 per cent target and is outpacing wage growth, making it harder for households to absorb higher prices. The latest reports are therefore expected to influence both financial markets and the Fed’s assessment of whether price pressures are becoming entrenched.
The Fed left its benchmark interest-rate range unchanged at 3.5 to 3.75 per cent at its July meeting. Three policymakers dissented, preferring a quarter-point increase, while the central bank said inflation remained elevated partly because of energy-related supply shocks.
Investors expect the Federal Reserve to raise rates at least once this year if inflation fails to ease. Higher borrowing costs would be intended to slow demand and bring price growth back towards the central bank’s 2 per cent goal, although they could also weigh on economic activity and household finances.
