Core CPI m/m
News release day: Tuesday, July 15
The Core Consumer Price Index (Core CPI m/m) reflects consumer inflation excluding food and energy and is considered the preferred gauge of underlying inflation by most central banks (although the Federal Reserve in the U.S. prioritizes the PCE Price Index).
The May report showed that core inflation remained flat on a monthly basis, with inflation declining across most categories—a development that was seemingly reassuring for the Fed. The chart below details the components of the May Core CPI.
One particularly notable point is the sharp decline in inflation within the services sector, especially discretionary services. Inflation in “Transportation Services” fell by 0.2%, indicating that consumers are exercising caution in spending on non-essential services. With trade policy uncertainty and labor market concerns weighing on sentiment, consumers appear to be cutting back on discretionary spending such as travel, entertainment, apparel, and non-essential goods. This trend especially impacts service prices, which have a more substantial influence on inflation than goods.
There has also been a decline in inflation in the “Services less energy services” category, including housing. The drop in Owner’s Equivalent Rent (OER), which alone accounts for 26% of the CPI basket, is particularly encouraging. Additionally, prices for apparel and used cars also fell, contributing to the broader decline in goods inflation.
Looking ahead, a sharp increase in core inflation for July is not anticipated, as consumer demand remains weak—helping to keep service prices in check. Since services carry greater weight in the CPI, any inflationary pressure from tariffs may be offset.
Market Reaction to the Data
If the core inflation figure comes in above expectations, it may temporarily strengthen the US dollar by reducing expectations for Fed policy easing. This would weigh on risk assets such as stocks and cryptocurrencies.
Gold’s reaction in this scenario could be mixed—while it may initially decline due to dollar strength, it could recover later due to growing fears of stagflation risks. However, analyzing the underlying components of the data is crucial: if the inflation increase is driven by discretionary services, it could suggest a rebound in demand (though this is unlikely at present).
In this scenario, any dollar strength is likely to be short-lived, as the labor market and economic activity remain under pressure from restrictive monetary policy.
If the core inflation reading is below expectations, the dollar would likely weaken, boosting risk assets and supporting gold through the channel of a softer dollar. In such a case, major currencies against the dollar—especially the euro—are expected to strengthen.
Monthly Consumer Price Index (CPI m/m)
News release day: Tuesday, July 15
In May, monthly consumer inflation came in below expectations and declined. Although some tariff-sensitive categories showed sharp price increases, these were offset by a notable decline in services inflation. Since services carry greater weight in the CPI basket, the overall headline index did not reflect inflationary pressures in goods.
Following consecutive months of declining inflation, market expectations for interest rate cuts have risen. Consumers have not yet felt the impact of tariffs—mainly because weak demand has reduced firms’ pricing power. Companies are finding it increasingly difficult to pass higher input costs onto consumers. Instead, many producers are absorbing the costs by cutting labor expenses—through layoffs, reduced working hours, or hiring freezes. While headline labor market data still appears strong, a closer look reveals early signs of gradual weakening.
Market Reaction to the Data
If monthly CPI comes in above expectations, it may temporarily strengthen the US dollar by reducing the likelihood of imminent rate cuts. This would likely be negative for risk assets such as stocks and cryptocurrencies.
Gold’s response in this scenario could be mixed: the metal may weaken initially due to a stronger dollar, but concerns over stagflation risks could drive a rebound in gold prices after the market digests the data.
That said, any dollar strength is likely to be short-lived, as the labor market and broader economic activity remain under pressure from the Fed’s tight monetary stance.
Conversely, if monthly CPI comes in below expectations, the dollar is expected to weaken while risk assets rally. Gold would likely benefit from dollar weakness, and major dollar pairs—especially the euro—could strengthen.
Consumer Price Index (CPI y/y)
News release day: Tuesday, July 15
Annual inflation for May was reported at 2.4%, slightly above April’s 2.3% but below market expectations of 2.5%. If no significant price pressures emerge in Q3, annual inflation is expected to move closer to the Federal Reserve’s 2% target starting in August. However, for interest rate decisions, the Fed primarily monitors Core Inflation and the PCE Price Index.
In the Fed’s June projections, officials forecast Core PCE inflation to reach 3.1% by the end of the year—an upward revision from the March forecast. This indicates that the Fed now expects higher inflation, largely due to the anticipated impact of tariffs.
However, there is disagreement among Fed officials regarding the magnitude and nature of the inflationary impact from tariffs. Some believe tariffs cause a one-time spike in prices, after which inflation subsides. Others—comprising the majority—argue that tariffs have a more persistent inflationary effect.
During the most recent FOMC meeting, Chair Jerome Powell emphasized that a portion of tariff-related costs will be passed on to consumers, and the Fed must assess this impact before considering rate cuts. He also stated that if tariff impacts on inflation during July, August, and September remain limited, there would be room to ease policy. Therefore, inflation data in Q3 will be heavily scrutinized by markets.
Market Reaction to the Data
If the annual CPI comes in above expectations, it will likely strengthen the US dollar temporarily by reducing the likelihood of a Fed rate cut. This outcome would be negative for risk assets, such as equities and cryptocurrencies.
Gold’s response in this scenario could be mixed: initially weakened by a stronger dollar, but potentially recovering later as concerns about stagflation resurface.
It’s important to note that dollar strength in this case would likely be short-lived, as the labor market and overall economic activity are under pressure from tight monetary policy—and the broader economy still needs rate cuts.
If the annual CPI comes in below expectations, the dollar would weaken, supporting risk assets and benefiting gold through the weaker dollar. In such a scenario, major currencies against the dollar—especially the euro—are expected to strengthen.
Producer Price Index (PPI m/m)
News release day: Wednesday, July 16
Producer inflation came in below expectations in May, reinforcing signs that input cost pressures have not yet been fully passed on to consumers. Following the release, rate cut expectations increased, resulting in a weaker US dollar.
However, in the second half of the year, there is a growing likelihood of higher producer and consumer inflation, as noted by Chair Jerome Powell during the latest FOMC meeting. He mentioned that companies are likely to pass on a portion of their cost burden to consumers as a response to persistent input cost pressures.
In the May PPI report, early signs of rising costs in tariff-sensitive goods were evident. Prices for durable consumer goods recorded their largest increase since January 2023, reflecting cost pressures. However, moderate price gains in categories like food, energy, and non-durable goods helped offset the overall inflationary impact.
Market Impact of the Data
If the PPI comes in above expectations, the US dollar is likely to strengthen in the short term. This would be negative for risk assets such as equities, cryptocurrencies, and gold. In a risk-off environment, safe-haven currencies such as the Japanese yen and Swiss franc may see mild strength as well.
Conversely, if the PPI falls short of expectations, the dollar will likely weaken. This scenario would benefit risk assets, support gold, and boost the euro, driven by easing inflationary pressures and a potential shift toward looser monetary policy.
Core Producer Price Index (Core PPI m/m)
News release day: Wednesday, July 16
Core PPI for May came in at 0.1%, below expectations of 0.2%. The increase in service prices was mainly driven by a rise in wholesale profit margins, indicating higher input costs—possibly due to the impact of new tariffs, reflecting how trade policy is influencing inflation.
Some components of the PPI that are more directly linked to the Fed’s preferred inflation gauge (PCE index)—such as portfolio management services, airline fares, and healthcare services—showed declines, which is likely encouraging for the Federal Reserve.
In the upcoming report on Wednesday, wholesale profit margins will be a key area of focus, as they may reveal how much of the tariff burden is being passed through to prices and, by extension, to inflation expectations.
Market Impact of the Data
- If the Core PPI reading is above expectations, the US dollar is likely to strengthen temporarily, leading to a pullback in risk assets like equities and cryptocurrencies. Gold may also decline due to the stronger dollar. In this scenario, the euro would likely weaken against the dollar.
- Conversely, if the Core PPI comes in below expectations, the dollar would weaken, which would support a rally in risk assets, gold, and euro appreciation.
Core Retail Sales (m/m)
News release day: Thursday, July 17
Core retail sales in May recorded a sharp 0.3% decline, reflecting consumer caution in purchasing essential goods and services. According to Walmart’s report, consumers are increasingly focused on buying necessities.
Headline retail sales dropped significantly by 0.9%, largely due to a steep decline in automobile sales. Additionally, a sharp fall in restaurant sales—categorized as discretionary services—also weighed on core retail sales. Sales of building materials declined amid ongoing challenges in the construction sector.
One positive aspect of the data was an increase in sales within the control group, which excludes building materials, vehicles, gasoline, and food. This segment saw growth partly driven by sporting goods sales, which may be somewhat influenced by tariffs, as most raw materials for sporting goods are imported from China.
Market Impact of the Data
- If retail sales exceed expectations, this signals an improvement in consumer demand and will likely cause a temporary strengthening of the US dollar. Higher retail sales would also benefit risk assets such as equities and cryptocurrencies.
- Conversely, in this scenario, gold and safe-haven assets like the Swiss franc and Japanese yen could face temporary downward pressure. The euro, as a competitor to the US economy, would likely weaken on stronger core retail sales.
- If retail sales fall short of expectations, this would indicate weakening consumer demand, causing the US dollar to weaken. This would be detrimental to risk assets including stocks and cryptocurrencies and likely trigger a risk-off sentiment, benefiting safe-haven assets such as gold, the franc, and the yen.
In the event of mixed data (for example, core retail sales rising while headline retail sales fall short), the market typically reacts more strongly to core retail sales, as it provides a better gauge of underlying consumer demand. Under such conditions, paying close attention to the control group sales details becomes especially important.
Retail Sales (m/m)
News release day: Thursday, July 17
Retail sales data reflects the value of consumer spending over the given period. In May, both headline and core retail sales came in significantly below expectations. This sharp decline signals consumer caution in spending. Household concerns about future inflation and the labor market—stemming from uncertainty around government trade policies—have kept consumer sentiment subdued despite relatively stable inflation data.
However, savings rates remain at acceptable levels, indicating that households are taking a cautious approach by building savings amid uncertainty.
As tariff impacts on inflation are expected to become more apparent over the summer, consumer price sensitivity is likely to increase in Q3. Major retailer Walmart has warned about potential cost pass-through to consumers, which has already affected retail sales and suggests continued weakness in upcoming retail data.
Market Impact of the Data
- If retail sales come in above expectations, this would signal an improvement in consumer demand and likely lead to a strengthening of the US dollar. Higher retail sales would also benefit risk assets such as stocks and cryptocurrencies.
- Conversely, in this scenario, gold and safe-haven assets like the Swiss franc and Japanese yen might face temporary downward pressure. Additionally, the euro, as a competing economy to the US, would likely weaken in response to stronger US retail sales.
- If retail sales are below expectations, it would indicate weakening consumer demand, causing the US dollar to weaken. This outcome would negatively affect risk assets including equities and cryptocurrencies.
Such a scenario would likely trigger a risk-off sentiment, benefiting gold and other safe-haven assets.
Unemployment Claims
News release day: Thursday, July 17
The unemployment claims data shows the number of individuals filing for unemployment benefits for the first time in a given week. Over the past two weeks, the number of claims has been below expectations. Last week, 227,000 people filed for unemployment benefits, marking the lowest level in seven weeks. However, this data includes the July 4th holiday period, during which claims tend to be volatile.
This suggests that employers, despite signs of labor market weakness, are still trying to retain their workforce, supporting the Federal Reserve’s stance of maintaining a steady interest rate. Private sector businesses are performing better due to lower labor costs resulting from reduced working hours and part-time jobs.
Despite the decline in new weekly claims, continued claims have risen by 10,000 to 1.965 million. Moreover, May employment data showed an increase in the average duration of unemployment to 10.1 weeks (up from 9.5 weeks in April), supporting the rise in continued claims and indicating that unemployed individuals are spending more time seeking jobs.
Market Impact of the Data
- If the data comes in above expectations (higher unemployment claims), it signals further labor market weakness and typically leads to a weaker US dollar. This scenario may trigger a risk-off sentiment, benefiting gold and safe-haven currencies like the yen and Swiss franc. The euro would also benefit from a weaker dollar.
- However, unemployment claims data usually has a limited market impact on its own and is rarely a trend driver.
- Conversely, if the data is below expectations, it is seen as a sign of labor market improvement and can temporarily strengthen the US dollar. The medium-term strength of the dollar, however, depends on further labor market data.
- In this case, gold is likely to decline, and the euro may weaken temporarily.