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Weekly Economic & Financial Commentary: Some Relief on Inflation, but It’s Still Hot Out There

Summary

United States: Some Relief on Inflation, but It’s Still Hot Out There

  • The CPI data this week showed that the sharpest monthly consumer price hikes may be behind us, but inflation is not about to quietly fade away. Ongoing supply constraints for products and labor, rising costs and renewed risks around COVID weighed on small business optimism in July and our own outlook for growth, as we describe in our latest Monthly Outlook.
  • Next week: Retail Sales (Tuesday), Industrial Production (Tuesday), Housing Starts (Wednesday)

International: Solid Showing From the U.K. Economy

  • The U.K. economy rebounded in Q2 from an early 2021 stumble, as GDP jumped 4.8% quarter-over-quarter, with strong gains in consumer spending and government spending. A sizable gain in June GDP also indicated the quarter ended on a firm note. While July retail sales are expected to rise only moderately, we still expect a decent-sized gain in U.K. GDP in Q3.
  • Next week: Japan GDP (Monday), China Retail Sales & Industrial Output (Monday), U.K. Retail Sales (Friday)

Credit Market Insights: Credit Cards Along for the Spending Ride

  • Consumer credit outstanding grew by $37.7 billion during June, the largest increase on record according to data released by the Federal Reserve last week. While this is a significant jump, it is important to keep in mind that these increases are coming off of a relatively low base.

Topic of the Week: IMF Announces Significant New Allocation of SDRs

  • The International Monetary Fund recently announced a significant new allocation of special drawing rights that is valued at $650 billion. Will the allocation have major consequence for the global economy?

U.S. Review

Some Relief on Inflation, but It’s Still Hot Out There

Fed officials likely breathed a sigh of relief when the July Consumer Price Index was released earlier this week. The 0.5% increase ended the four-month streak of upside surprises and showed price hikes easing from their startling pace over the past few months. Relief came on the used car front as well as in travel categories like car rentals and airfare, lending credence to the notion that the recent degree of inflation is unlikely to persist as supply constraints ease and demand cools from the frenzied pace of this spring’s reopening