The last gasp of import-led price inflation?

With sterling now buying just over 1.3 dollars at the time of writing, the GBP/USD rate is roughly flat year-on-year and we’ll now start to see the (supposedly) one-off effect of the Brexit-inspired depreciation of the pound begin to ebb away. While this may become apparent in producer prices data, the staggered fashion of price rises, margin compression and cyclical business decisions means high levels of consumer-facing inflation will be sustained until approximately the end of 2017. Our research at the beginning of the year suggested that a large number of SMEs remained hedged at the turn of 2017, meaning that as these hedges expire, higher prices will follow, and inflation will run hot at least until the beginning of 2018.

As we pointed out yesterday, there’s a chance today’s inflation numbers will provide somewhat of a reprieve for the Bank of England, as manageable energy prices, the stronger value of Sterling and a slowing of demand from the average consumer could keep a lid on inflation today. Nonetheless, with the Bank of England’s current tolerance of high inflation, it’s unlikely today’s numbers will influence their thinking too much whatever the outcome.

Today’s figures may provide the theory that consumers are trimming spending in response to price pressures and inflation, but we’ll have to wait until Thursday for the evidence, when June retail sales are due.

Trumpcare as good as dead in the water

Trump’s presidency so far this year has been plagued by setbacks, legislative resistance and a hostile press. What doesn’t constitute ‘fake news’ is voting in the Senate and Trump’s landmark repeal of Obama’s healthcare policy has failed on its feet. Two Republican senators have vowed to vote against the proposal – effectively blocking its passage. The proposed legislation was built to circumnavigate Democratic opposition, but was relying on broad-based Republican support. Without this, the Senate majority leader has had no choice but to abandon ‘repeal and replace’ in favour of a more simple repeal bill with a two-year delay, marking what is undoubtedly the biggest failure yet for the Trump administration.

Another hiccup for Trump suggests that if he can’t pass the healthcare bill, he can’t pass tax cuts, he can’t pass infrastructure spending and he won’t be able to juice the economy. In response, the USD’s fallen pretty sharply and the Japanese yen has benefited from safe haven flows.

Aussie sits at two-year highs

Trump’s healthcare dilemma, a Chinese economy going from strength to strength and a confident central bank have proved the perfect environment to boost the Australian dollar this week, which now sits at a two-year high against the greenback. The sustainability of this strength will largely depend on commodity prices and with oil and mineral prices so volatile of late, a long-lasting recovery is all but assured.