Did the rate of UK inflation rise last month?

Surging oil and gas prices, coupled with climbing food costs, are weighing heavily on the UK economy. In June, inflation in the country hit a fresh 40-year high of 9.4 per cent, above levels in the eurozone and US.

Inflation data for July will be released on Wednesday, with economists polled by Reuters expecting the consumer price index to have risen by 9.7 per cent year on year. British households are forecast to face average annual energy bills above £5,000 next year, as Russia’s war in Ukraine adds to a squeeze on oil and gas supplies to Europe.

Earlier this month, the Bank of England warned that UK inflation is expected to hit 13 per cent and the country would fall into recession by the end of the year. The bank raised interest rates by 0.5 percentage points to 1.75 per cent as it attempts to damp demand and stem rising inflation.

Vasileios Gkionakis, head of G10 currency strategy at Citi, said that inflation in the UK is “likely to prove stickier due to Brexit, complicating further [the] BoE’s policy.”

The US consumer price index rose by 8.5 per cent year-on-year in July, according to figures released this week, slowing compared with the previous month.

“The US doesn’t have quite as acute an energy issue as the UK,” said Lyn Graham-Taylor, senior rates strategist at Rabobank, adding that the Bank of England finds itself having “to sacrifice the economy” by raising interest rates in order to bring surging inflation back down to the 2 per cent target. Nikou Asgari

What will retail sales tell us about the state of the US consumer?

US retail sales figures for July are expected to give market participants insight into consumer confidence at the start of the third quarter — an important data point after two quarters of contraction.

Economists polled by Bloomberg forecast that the Commerce Department will report a 0.2 per cent increase in overall retail sales in July from the previous month, a slowdown in growth from the 1 per cent increase reported for June.

Some of the difference may be attributable to the decline in petrol prices since June, when the average cost for a gallon at the pump peaked at over $5. The move between June and July is less stark when auto and petrol prices are stripped out, though it still shows a slowdown: the Bloomberg poll indicates expectations of a 0.3 per cent increase in July versus 0.7 per cent in June.

Analysts at Bank of America suggest it is possible that the plunge in gas prices — which was evident in a slowdown in annual consumer price inflation in July — could have ramped up consumer spending in other areas of the economy. Those analysts forecast a 0.9 per cent month over month increase in retail sales, stripped of the effects of spending on cars, petrol, building materials and restaurants.

The data come in the wake of a red-hot jobs report for July as well as a second consecutive quarter of contraction in gross domestic product in the April-June period, the combination of which has provided a somewhat muddled picture of the state of the American consumer.

“Following the second consecutive contraction in real GDP during Q2, the moderation in inflation and durability of consumption will inform how the third quarter plays out in terms of realised growth,” said Ian Lyngen, head of US rates strategy at BMO Capital Markets. Kate Duguid

Has the dollar turned?

The US dollar has been on a tear. The Federal Reserve’s aggressive interest rate rises, aimed at curbing inflation, have helped push the greenback to 20-year highs in recent months. Yet economists are divided over how much further the currency has to run.

The latest US consumer price index data, which investors were watching closely for clues over how far the Fed will lift borrowing costs, showed signs of steadying in July. Wall Street stock markets rallied in response, and the dollar index — which measures the greenback against a basket of six other currencies — has slipped about 3 per cent lower from its July 14 peak.

“Barring a major upward repricing of rate expectations or revived hard landing fears,” Société Générale’s Kit Juckes said on Friday, “the dollar has peaked for good, subject as ever to what is going on elsewhere.”

Others are less sure: over 70 per cent of currency strategists polled by Reuters in early August thought the dollar’s strength had yet to peak, though a third of those surveyed said it would do so within the next six months.

ING’s Christopher Turner is among those who reckon the dollar will stay strong to the end of the year, arguing that it tends to benefit from high rates of inflation, slowing economic growth and “flat/inverting US yield curves as we have today” — referring to the scenario where yields on shorter-dated government bonds are higher than those on longer-dated bonds.

“Not until investors become convinced that the Fed is prepared to stimulate, not slow, the US and global economies should the dollar turn lower,” said Turner. George Steer