Investors look back at inflation, but forward to economic growth

Wednesday’s US consumer price index print was the big economic release last week, as investors weigh up inflation, interest rates and the subsequent impact on economic growth, writes Ian Slattery. 

The headline CPI figure rose more than forecast, hitting an annual pace of 9.1% (versus a consensus of 8.8%) which represents a fresh 40 year high. Once volatile elements such as food and energy are stripped out, ‘core’ inflation came in at an annualised pace of 5.9% versus a pace of 6.0% from one month ago. Investors now expect another 0.75% interest rate move higher later this month from the Fed, with a historic 1.0% hike also being suggested by some forecasters.

 Equity markets regained some of the immediate losses into the weekend as investors in technology stocks reasoned that interest rate hikes are now fully ‘baked in’ to market prices.

Other economic releases from the US illustrated that inflation expectations are moving lower. For example, the monthly US consumer sentiment report from the University of Michigan showed that America’s five-year inflation expectations have move sharply lower to stand at 2.8%, the lowest level in over a year.

Thursday’s producer price report did show a higher-than expected increase, but once energy costs were stripped out several components were lower. For example, copper, aluminium, and lumber have all seen falls of over 20% since their 2022 peaks. Oil also dropped last week to below $95 a barrel for the first time since the invasion of Ukraine.

In the UK, economic growth surprised to the upside in May, with a monthly advance of 0.5%. Whilst some of the underlying data hinted at the effects of inflation on households, the headline figure was a welcome development after the negative growth experience in April.

China, the world’s second biggest economy, expanded 0.4% in the 2nd quarter. The tepid growth has largely been attributed to the ‘zero-covid’ policy and the full year target of 5.5% is now not expected to be achieved.


Global stocks were down last week by -0.1% in euro terms and -0.1% in local terms. Year-to-date global markets are down -9.5% in euro terms and -19.8% in local terms.  The US market, the largest in the world, was up 0.2% in euro terms and 0.2% in local terms.

Fixed Income & FX

The US 10-year yield finished at 2.96% last week. The German equivalent finished at 1.22%. The Irish 10-year bond yield finished at 1.84%. The Euro/US Dollar exchange rate finished at 1.02, whilst Euro/GBP finished at 0.85.


Oil finished the week at $99 per barrel and is up 47.7% year-to-date in euro terms. Gold finished the week at $1,721 per troy ounce and is up 5.3% year-to date in euro terms. Copper finished the week at $7,178 per tonne.

The week ahead

Wednesday 20th July

UK inflation for June is published.

Thursday 21st July

The ECB meets for its latest interest rate decision.

Friday 22nd July

Flash PMIs from several regions go to print.