Daily Economic Outlook: 19 August 2015

Yesterday's UK inflation release indicated that the recent fall in oil prices and strengthening of the domestic currency were insufficient to prevent annual UK CPI inflation edging up to 0.1% in July against the expectation that it would remain flat. However, Lloyds Bank expects that similar pressures will keep its US counterpart at 0.1% despite the pickup in economic momentum.   

With the September FOMC policy decision approaching, markets will be keen to assess today's July US CPI inflation figures as well as the minutes of the July FOMC meeting.

"An uptick in the core rate is expected to see at1.9% from 1.8% in June as services prices, especially rents, offset the continuing fall of core goods inflation stemming from stronger dollar. Given that the FOMC has noted that it wants to be reasonably assured that inflation is set to move towards 2 per cent before hiking the policy rate, a decline in both the headline and core rate would tilt the odds away from a September increase", states Lloyds Bank. 

Despite the subsequent ratcheting up of concerns about the global outlook, the minutes from the July 28-29 FOMC meeting will be heavily scrutinised for insights into how much weight the Committee place on the current weakness of inflation, which could be further prolonged by the decline in oil prices since July, against the broad evidence of a strengthening of economic activity over the last few weeks. Of course, its September 17 policy decision will also have to take the increased uncertainty about the international outlook into account. On balance, the Committee is expected to raise the policy rate next month.