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This week, all eyes are on inflation data as it takes center stage after a week filled with crucial job reports. The much-awaited U.S. June Consumer Price Index (CPI) will be unveiled on Wednesday, followed by the release of the Producer Price Index on the subsequent day.

Investors will be closely monitoring any downturns that could provide justification for the U.S. central bank to reconsider its plan of increasing interest rates by 25 basis points (bps). This shift towards a more stringent monetary policy would come after the Federal Reserve decided to pause rate hikes last month, marking the first break in a series of increases that had been ongoing for over a year. The Fed's measures have contributed to a reduction in the CPI from 9% in August 2022 to 4% in May. However, there are growing concerns that the central bank's actions could potentially lead to an excessive tightening and trigger a severe economic recession.

CPI

Observers of U.S. monetary policy will closely monitor the Labor Department's release of the June CPI on Wednesday. The CPI has been gradually declining since reaching its peak last year. According to economists' consensus, the June index is expected to decrease within the mid 3% range. However, Edward Moya, a senior market analyst at foreign exchange market maker Oanda, suggested in a note on Monday that it could potentially drop to 2.8%. Nevertheless, Moya also acknowledged that core inflation, which excludes the more volatile costs of food and energy, may remain high due to the expensive housing market. Moya stated, “Pricing pressures might remain throughout the summer,”

PPI

The PPI, a gauge of price fluctuations in the wholesale market, frequently serves as a precursor to future changes that consumers will experience. In May, the PPI recorded a 1.1% annual decrease, surpassing forecasts of a 1.5% decline and marking a significant drop from the previous month's reading of 2.3%. Analysts anticipate a reading of 0.4% for June.

Jobless Claims

Furthermore, the U.S. Labor Department has also announced the latest figures on jobless claims for the week ending July 8. Recent employment data has presented slightly contrasting views regarding the state of the job market. In the previous week, the ADP report indicated that businesses had added nearly half a million jobs in the private sector, surpassing economists' expectations twofold. This surprisingly robust outcome provided validation for the Federal Reserve's decision to maintain its aggressive measures against inflation. A thriving job market signifies economic growth, which often precedes higher prices. However, a marginal and unforeseen increase in jobless claims on the same day, coupled with a modest nonfarm jobs report later in the week, added complexity to the overall situation.