Inflation Data Seen Emboldening Fed Doves Amid Slowing Jobs Growth

In recent days, Federal Reserve officials have been citing inflation data to justify their dovish stance on interest rate hikes. However, a closer look at the numbers reveals that this narrative may not be entirely accurate. The Bureau of Labor Statistics' (BLS) monthly labor market update showed the US economy lost jobs in July, with revisions suggesting hiring during May and June was slower than previously reported.

The data also indicates that consumer price growth, as measured by aggregates, is unlikely to override faltering jobs growth for rate hike considerations. In fact, if the BLS reports steady inflation in July at 0.1% advance versus the prior month, it will further solidify the case against hiking rates.

Core CPI is expected to rise 0.2% MoM, with a YoY pace of 2.5%. This would be the slowest since the war started. The annual rate may even print below 2%, which could be seen as a normalization of inflation on the metric that matters most to policymakers.

Market participants will also be watching the wholesale inflation numbers for July, with consensus expecting a second consecutive benign readout. The Commerce Department's retail sales release is expected to show a small advance in July, but what matters is the control group, which has been printing solid gains.