Can inflation rewind the clock and move markets?

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Don’t Call It a Comeback

For years, inflation was the undisputed MVP of economic indicators, with investors and policymakers alike laser focused on each data release. Every unexpected move in prices sent ripples through the markets, influencing everything from stock valuations to monetary policy. However, just like NFL teams are set to adjust their game plans after the surprises of Week 1, investors and the Federal Reserve called an audible and shifted their focus from inflation to the labor market over the summer.

So if job market worries have picked up and price increases are mostly back to what economists consider normal, does this week’s inflation report even matter? In short, yes. 

Just because inflation is less of a problem doesn’t mean all worries are completely gone. Prices are still at record highs and straining American budgets, and that’s not to mention we’re heading into the most expensive time of the year with holidays around the corner. How people feel will go a long way in determining if the peak retail season booms or busts.

Next week’s inflation report could bring some clarity, especially since the jobs report we got on Friday was confusing: The unemployment rate declined yet fewer jobs were added than expected. Those mixed signals have left the size of the coming interest rate cut an open question, giving the inflation data an opening to make an impact. 
Consensus is for year-over-year consumer price index growth to slow from 2.9% in July to 2.6% in August, with relatively few outlier estimates. That suggests that economists are pretty confident in, if not herding toward an outcome, opening up space for inflation releases to surprise us all and wrest back the market narrative.

Economic and Earnings Calendar

Monday

• July Wholesale Inventories and Sales: Wholesalers often operate as an intermediary between manufacturers and retailers, serving as a key part of the goods supply chain. 
• August New York Fed Survey of Consumer Expectations: This is a measure of peoples’ expectations for inflation, jobs prospects, earnings growth, and more. 
• July Consumer Credit: Borrowing activity gives insight into broader economic activity.
• Earnings: Oracle (ORCL)

Tuesday

• August NFIB Small Business Optimism: This measures how small business owners feel about current and future economic conditions.

Wednesday

• August Consumer Price Index: The CPI is one of the most popular indicators for tracking consumer price trends and is a marquee release for market watchers. CPI has come down notably from its peak in 2022 and is near pre-pandemic levels.
• Weekly Mortgage Applications: Mortgage activity gives insight on demand conditions in the housing market.

Thursday

• August Producer Price Index: The PPI tracks price trends that producers face and is down significantly from its peak earlier in the cycle. 
• August Treasury Statement: This summarizes the U.S. federal government budget by tracking government revenues and expenditures.
• Weekly Jobless Claims: This high frequency labor market data gives insight into filings for unemployment benefits. Jobless claims have continued to show a labor market that remains strong despite having cooled.
• Earnings: Adobe (ADBE), Kroger (KR)

Friday

• September University of Michigan Consumer Sentiment: How consumers feel about economic conditions affect their spending habits. This survey places a particular focus on inflation and its trajectory.

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