US producer prices fall whilst Jobless claims increase for the fourth week in a row
Signs that the inflation rate in the US will start to pick up in 2018 were apparent in this afternoon’s data. A drop in the cost of services across America has started to raise questions as to whether inflation will start to pick up this year. This will almost certainly pave the way for the US Federal Reserve to stick to the three interest rate hikes planned this year and could tempt investors into the Dollar, pointing to signs of long-term strength for the Dollar.
US Federal Reserve chair Janet Yellen’s major concern for the time being is likely to be current inflation levels. Today’s data has reignited the belief that the sharp decline in import data (released Wednesday) combined with a stronger work force in the US will help lift inflation towards the 2% target.
The US’ preferred measure of inflation, the personal consumption expenditure isn’t released until later this month, and has missed targets since May 2012. The interest rate outlook for the remainder of the year will be dependent on the inflation outlook. Tomorrow’s Consumer Price Index (CPI) report is also a measure of inflation and could create volatility for the US dollar if this figure drops further than the 0.4% decrease expected.
Data points to a strong labour market
One of the key drivers for interest rate hikes in the past year, allowing the US federal reserve to raise interest rate three times, was a strong labour market and Thursday’s figures pointed to this continuing. The increase in unemployment benefits was attributed to the crippling cold that has frozen parts of America since the Christmas period, keeping some people at home. Last week marked a record breaking 149th straight week that the Non-farm Payroll data remained below 300,000, which generally means an extremely strong workforce.
A strong labour market combined with a weakening Dollar at present normally invites investors and can help to lift inflation. This is the reason why, in my opinion the US has been extremely bullish in its approach to raising interest rates. Any slowdown in the labour market in the US could point to severe Dollar weakness, keep a close eye on any related data.