Ahead Of Thursday's Inflation Data El-Erian Sounds Out 2 Uncertainties That Could Undermine July Data

The Labor Department is scheduled to release its consumer price inflation report for July Thursday at 8:30 a.m. EDT. The number assumes importance because Federal Reserve Chair Jerome Powell said at the press conference that followed the July meeting that future rate moves would depend on each incoming data.

Economist Mohamed El-Erian shared his thoughts on how the number will pan out.

What Happened: Two major uncertainties cloud the outlook for the July consumer price inflation data, said noted economist Mohamed El-Erian. These include the direct and indirect pass-throughs of the recent increase in energy and food prices and the relative stubbornness of service inflation.

He said these factors were previously seen as unlikely to undermine the July numbers.

The consensus estimates call for a 0.2% month-over-month increase and a 3.3% year-over-year climb in the headline number. Core readings' month-over-month and year-over-year rates are expected at 0.2% and 4.8%, respectively.

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Why It's Important: The WTI-grade crude oil rallied about 15.8% in July amid supply tightness and rising global demand for the remainder of the year. The commodity also got a shot in the arm from the dollar weakness, given it is denominated in the greenback and therefore shares an inverse relationship with the currency. The Dollar Index slid about 1% in July.

A report released by the U.N.'s Rome-based Food and Agricultural Organization said global food prices rose in July amid the termination of the Black Sea Grain Initiative and the new trade restrictions on rice. The Black Sea Grain Initiative, a three-way pact signed by Turkey, the U.N., and Russia in July 2022, allowed commercial food and fertilizer exports from three Ukrainian ports in the Black Sea. With Russia pulling out of the pact, food prices have reacted with a move to the upside.

After peaking in the summer of 2022, U.S. inflation has been tracking a downward trajectory, offering scope for the Fed to slow down its rate hikes.

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