Good inflation vs. bad inflation

Consumer price index figures on Friday topped 2% on an annualized basis and therefore is running hot. This is just what the Federal Reserve should be looking for in order to justify raising interest rates, right? Well, probably not. Due to the weather effects from the Atlantic Hurricane Season in late August/early September, energy costs jumped through the roof: gasoline was up over 13% in September alone. Once the weather calms down and supply routes are back up and running, there will likely be an easing of energy costs throughout the final quarter of the year – dragging down inflation with it. Not exactly the inflation dynamics that members of the FOMC will be content with as a sign of a healthy, expanding economy.

More light will be shed on the inflation picture this week with export/import price indices on Tuesday, with housing numbers due on Wednesday and Friday.

White House is not in the driving seat

As the dollar continues to become more resilient to the political ups and downs in Washington D.C., it’s still particularly sensitive to the protestations of the Fed. This week sees six different Fed members talk to various audiences, culminating with the Fed chair Janet Yellen appearing late on Friday. With the Fed chairmanship still up for grabs, the outlook for governorship at the world’s most influential central bank is particularly cloudy – nonetheless Yellen moved markets this weekend by suggesting the board will continue to follow a conservative, prudent path of rate hikes despite the weak inflation figures last week.

What happens with tax reform from here forward is unclear. Twitter posts, op-eds and newspaper columns from both sides of the house will do little to further the cause while the political tension runs high and both sides refuse to compromise an inch.

Further afield

Outside of the US, the UK faces a data minefield this week with inflation, labor market statistics and retail sales released from Tuesday onwards. Needless to say, these datapoints come amidst a backdrop of Brexit tension as EU representatives judge negotiations to have reached ‘deadlock’.

Various UK officials are meeting their European counterparts this week in an attempt to reignite progress, and the prime minister herself may be attempting to make advances on that transitional deal that would see the UK remain a member of the Single Market for a further two years.