11 August 2022
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US inflation has peaked

By Khatija Haque

  • US consumer inflation came in lower than forecast in July, with headline CPI at 0% m/m (8.5% y/y). This follows m/m increases in CPI of 1.3% (9.1% y/y) in June and 1.0% in May, and was the slowest monthly inflation since May 2020. The main driver of the softer inflation in July was lower petrol and household natural gas prices, with petrol prices down -7.7% m/m. However food price inflation remained high at 1.1% m/m.  
  • Core inflation also rose by less than forecast last month, up just 0.3% m/m (5.9% y/y) against expectations of a 0.5% m/m gain.  The cost of airline fares, appliances, clothing & footwear and used vehicles all declined m/m, but healthcare and housing remained key sources of inflation in July.
  • With global food prices moderating further and the US housing market showing signs of slowing, there is reason to believe the US may be past the peak on inflation. However, one better-than-expected reading is unlikely to be enough for the Fed to pivot when core inflation remains well above the 2% target and the labour market is in rude health.
  • Fed officials have already pushed back against moderating market expectations on rates post the CPI. Neil Kashkari (Minneapolis) said expectations that the Fed will lower rates next year was “unrealistic” as inflation will still likely be well above 2% and Charles Evans (Chicago) said he expects rate hikes to continue into next year. We continue to expect the Fed will raise rates by 50bp at the September meeting and by 150bp to 4% by year end. 
  • Saudi Arabia’s PIF has acquired minority stakes in four Egyptian companies for USD 1.3n. The companies are Abu Qir Fertilizers Co, Misr Fertilizers Production Company, Alexandria Containers and Cargo Handling Co and E-finance.
  • Local press reports that Turkey is in talks to secure USD 20bn in deposits from Saudi Arabia to bolster its foreign currency reserves. 

Today’s Key Economic Data and Events

  • 16:30 US PPI (Jul) forecast 0.2% m/m and 10.4% y/y
  • 16:30 US initial jobless claims (Aug 6) forecast 265k

Fixed Income

  • Short term US treasury yields declined on Wednesday as investors pared expectations for further Fed rate hikes following better-than-expected US inflation data in July. The US 10y yield was broadly unchanged at 2.78% while the 2y yield fell -6bp to 3.21%.
  • 10y bunds and gilts saw yields slightly lower as well yesterday, down -3bp and -2bp respectively.


  • The USD weakened overnight as the market recalibrated its expectations for the further rate hikes from the Fed, with the Bloomberg dollar index down 1.1% to its lowest level in over a month.  However, it has recovered slightly in Asian trade this morning.
  • Both AUD and NZD rose to their highest levels in almost two months against the USD after the US CPI data was released.


  • US equities rallied after the better-than-expected July inflation figures pared rate hike expectations. The S&P500 closed up 2.1% while the Nasdaq composite surged 2.9%. European indices closed higher as well with Shanghai composite and the Nikkei 225 being the only major global indices to end the day in the red yesterday.   
  • Regional equity indices also closed higher for the most part yesterday with Saudi Tadawul ASI and Abu Dhabi GI both up 0.8%. Bahrain was the main exception, with the bourse’s ASI down -1.0% on Wednesday.  


  • Russia resumed crude oil exports through Ukraine to Eastern Europe yesterday after transit fees were paid.
  • EIA data showed US crude inventories rose by more than 5mn bbl last week, as crude oil production continues to recover. US crude production reached 12.2mn b/d as of 5 August, the highest level since April 2020 but still below peak US crude production of 13.1mn b/d before the pandemic.   
  • Both Brent and WTI closed higher yesterday but are trading lower in Asia this morning at USD 97.32/b and $91.87/b respectively.  

Click here for charts and tables



Written By

Khatija Haque Head of Research & Chief Economist

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