Market Update

After the market's intense focus on last week's US employment data release, this week's primary attention shifted to Wednesday's (August 11, 2021) US Consumer Price Index (CPI) inflation report.
Fortunately, the inflation figures aligned with our predictions in previous market updates. The month-on-month increase in inflation slowed considerably, resulting in a stable year-on-year headline inflation rate of 5.4%. Meanwhile, the core inflation rate, which excludes volatile items like food and energy, declined from 4.5% in June to 4.3%.
This outcome validates our belief that the current inflationary pressures are transient and should subside as the year-on-year calculations absorb the distortions, rather than leading to sustained high inflation.
Furthermore, when we delve into specific sub-categories, it's evident that used car prices, which had been a significant contributor to the recent overall inflation surge, are no longer exerting upward pressure. More importantly, this suggests that the semiconductor supply chain issues that were impacting new car production may be starting to ease.
As a result, this week's data should offer Federal Reserve policymakers confidence to focus on the future course of inflation rather than being overly concerned about its temporarily elevated levels. Consequently, we maintain our perspective that US interest rates, along with those in the UK, Europe, and Japan, will remain low for the foreseeable future.
Turning to the upcoming week, key economic events include UK employment figures (unemployment rate and weekly earnings), UK Consumer Price Index (CPI) inflation data, retail sales reports from the US, UK, and China, and Gross Domestic Product (GDP) figures for Japan and the Eurozone.