This Round of Inflation Data Will Matter Greatly

Here we go again. Brace for the latest dose of critical data on US inflation over the next three days, as the New York Federal Reserve publishes its monthly survey of consumers’ inflation expectations Monday, followed by the Labor Department’s report on producer prices Tuesday and consumer prices Wednesday. These reports will matter a lot.

Of late, the mood has switched toward optimism that inflation is being tamed, while central banks that met last week either reduced benchmark interest rates, or suggested cuts were imminent. The latest data also show a US economy slowing in just the way the Federal Reserve wants to see. The jobs market has stayed obdurately strong throughout the post-pandemic fight against inflation. That makes it far harder for a central bank to be lenient. But last week, initial US claims for jobless insurance spiked to their highest level since August:

initial evidence

This is a noisy series, and last week’s result followed several low numbers, so the four-week moving average of claims remains in its recent healthy range. But a rise in claims like this is exactly what we would expect to see if higher rates were indeed beginning to slow the economy; if they continue to run at this level for another month, it would be far easier for the Fed to justify cuts.