Inflationary expectations for the US also show a significant jump. July estimates of the University of Michigan noted an acceleration of Next Year inflation to 3.1%, and the 5-Year one to 2.7%, adding sharply since May. This is in stark contrast with the current declining sentiment.
The growth of inflationary expectations is often interpreted as a sign of economic acceleration. However, this time it may be a sign of stagflation (a mix of rising prices and falling economy). Yesterday, the Conference Board noted a decline in consumer confidence, confirming the assessment of the UoM.
For the Fed, such a combination of factors is a real nightmare. After all, the Central Bank, being afraid to release a genie of inflation, will be limited in pressure on interest rates.
The FxPro Analyst Team