Inflation in The UK has again reached new highs, climbing to 10.1% in July mainly contributed by an increase in prices for food and fuel. Expectations for inflation hitting double figures have come much earlier than the initial time-frame of October, and is also the first time since February 1982 that inflation has been in double figures.
The biggest increase saw price rises for bread, cereal, dairy, meat, vegetables and many more household goods. Package holidays and air fares also rose sharply due to a summer rush to get away once all covid rules had been lifted. With inflation set to climb potentially as high as 15%, this leaves The Bank of England with no choice but to keep on hiking interest rates, and more aggressive than previously, with a further 100 bps worth of hikes expected by the end of the year.
First up this morning, focus turns to the inflation release for The Euro-Zone. Forecasts suggest inflation will climb to 4%, up from 3.7% in June with The Euro-Zone also struggling to contain rising inflation as they face an energy crisis off the back of reduced fuel supply by Russia. The European Central Bank raised rates by 50bps last time out, so any major increase in inflation will no doubt put the central bank under pressure to look at further rate hikes moving into the end of the year. In terms of impact on the currency, this will come down to how much higher or lower inflation actually is compared to the current projections.
Heading into the afternoon we have weekly jobless data for The United States, with members of The Federal Reserve stating the current strength in the labour market suggests that economic activity is stronger than what the 2nd quarter growth figures portrayed. These releases along with inflation, wages and Non-Farm Payrolls will nonetheless be closely watched by the central bank as they gear up for another rate hike in September. Markets are currently pricing in a 50bps hike at 57.5%.