Last week, China’s annual inflation rate published unexpectedly fell to 1.1% in June 2021 from an eight-month high in May. Market expectations hinting at a 1.3% growth were disappointed by data. The full commentary of the Chinese data has been described in a previous Aleph Finance report here.
US futures were in wait-and-see mode along with equities in Europe on Tuesday, as the market was awaiting key US inflation data and second-quarter earnings reports from some of the world’s largest banks.
Expectations for a solid earnings season are underpinning the rally in equities and investors are wondering how central banks will ease the support driving the recovery from the pandemic. However, inflationary pressures remain a concern, as well as the spread of thethe delta variant and slowing vaccination rates.
Meanwhile oil rose for the third time in four days as traders dealt with the demand implications of a Covid-19 recovery in several regions and the slowdown in economic activity in China.
Surprisingly today data shows that annual inflation rate in the US jumped to 5.4% in June of 2021 from 5% in May. US inflation posted the largest gain since August 2008, and well above consensus of 4.9%. Inflation has been on the rise this year amid low base effects from 2020. While the economic recovery picks up, business restrictions ease and demand surges amid widespread vaccination and federal support.
Data published today shows that the main driver of the increase in prices are components linked to used cars, rental cars, vehicle insurance, lodging, airfares, and food away from home.
The highest price increases were recorded for transport services (11.2%), gas services (13.5%),petrol (56.2%), used cars and trucks (29.7%), and clothing (5.6%). Also housing and food costs went up by 2.2%.
Such items that can be classified as indicative of a post-lockdown situation an closed linked to the incoming holiday season. As such the upward pressure in inflation is still anchored in the baseline scenario of the narrative of the Federal Reserve of a temporary inflation.