Sticky US Inflation Holds Above Fed Target as Trade Tensions Rise
US inflation remained sticky in July at 3.7%, holding above the Federal Reserve's 2% target for the 65th consecutive month.
The Personal Consumption Expenditures Price Index (PCE) reading was unchanged from June, which was below economists' forecasts of 3.6%. The PCE shot to a three-year high of 4.1% in May after President Donald Trump launched air strikes against Iran, sending energy prices soaring.
The conflict has yet to be resolved, and the exchange of fire has diminished but not disappeared. Oil prices and the wider inflation wave they instigated have retreated from their mid-spring highs, but the fall-back in inflation over the last two months is unlikely to mollify a growing minority of officials who argue tighter policy is needed.
The Federal Open Market Committee (FOMC) members who voted to leave rates unchanged in July are likely to be influenced by the sluggish pace of improvement. The FOMC has kept interest rates in the range of 3.50% to 3.75% since December, but some officials argue that further restraint is needed to bring inflation back down.
Trade negotiations between the US and its second-largest trading partner Canada fell apart on Friday, resulting in new levies on $20bn of Canadian goods imports. Since then, Washington and Ottawa have each announced additional retaliatory measures unless a deal is reached to avoid them.