Reports on consumer and wholesale inflation headline the week’s economic data as tariff negotiations between the U.S. and China begin.
After a brief sojourn from the roller coaster of tariffs and with a benign report on the labor market last week, the economic focus will shift this week to a problem that once dominated the news: inflation.
There will be two important readings on consumer and wholesale prices, on Wednesday and Friday, respectively. And they come at an important time with the Federal Reserve meeting June 18 to 19. The central bank is not likely to change interest rates at the meeting, but the statement it issues will be parsed for hints of future interest rate cuts.
President Donald Trump ratcheted up the pressure on Fed Chairman Jerome Powell last week with a blast that called for a 1% cut in rates – something that the Fed would never consider in a low unemployment, slow-growth economy in normal times. But with the uncertainty over tariffs prominent, it is a non-starter.
That leaves the data as the main driver of Fed policy. Expectations are for the consumer price index to be unchanged for the month and for the annual rate to increase from 2.3% in April to 2.5%. The core CPI that leaves out often volatile food and energy prices is forecast to rise by 0.3% from 0.2% in April.
The PPI, measuring the gains in prices that companies pay for their supplies, is forecast to increase by 0.2% for the month, after a negative reading in April.
“Inflation data will drive the economic narrative this week,” Comerica Chief Economist Bill Adams wrote in a client note early Monday. “The CPI and PPI probably rose modestly in May due to lower energy prices, while core CPI and PPI likely accelerated as businesses began passing tariffs on to their customers.”
While the inflation numbers remain relatively benign, there is tension below the surface as businesses deal with increased costs from some of the tariffs that have gone into effect. Many are either postponed or the subject of ongoing negotiations between Washington and the capitals of several nations.
“Retailers and manufacturers are reporting narrower margins and declining order volumes,” said Mark Vitner, chief economist at Piedmont Crescent Capital. “The reluctance to raise prices stems less from competition than from consumer resistance, political scrutiny, and the risk of drawing unwanted attention – potentially even a presidential callout. With inflation expectations rising and actual inflation slowing, businesses are caught between rising input costs and softening demand, with no straightforward way to pass costs along.”
Eventually, that will result in increased layoffs and potentially a contraction in the economy. But for now, that is still a ways off in all probability.
The week ends with the preliminary consumer sentiment survey for June from the University of Michigan. It may show a slight improvement, although the mood of consumers has been sour in recent months over the issues of tariffs and inflation.
