July CPI: What To Watch For?

July CPI comes out tomorrow. Core CPI is expected to accelerate. When inflation beats expectations, bitcoin typically sees more downside.

Structural Wage And Rent Inflation

Tomorrow, we’re back again for another round of the U.S. Consumer Price Index (CPI) data with headline CPI expected to come in at 8.7% (down from 9.1%) and Core CPI expected to come in at 6.1% (up from 5.9%). 

With Core CPI expected to continue accelerating, one of the biggest concerns for inflation is the consistent rise in wages seen over the last few months. Data for unit labor cost came out today for Q2 (a backward-looking metric) showing the largest annual increase since the 1980s. Although we may see headline CPI start to come down, the potential for a wage-inflation spiral driving an accelerating Core CPI is much more of a concern. 

The Atlanta Fed’s wage tracker shows the same trend with median wage growth rising to 6.7% in the latest June data. All of this growth is in nominal terms and real earnings growth is still negative. If the Federal Reserve is serious about their hammer toolkit to bring inflation back down (or at least attempt to), then the rising wage data across the board will further push them into their aggressive tightening stance. 

Wage growth is sticky and structural; it lasts for much longer than shocks to energy prices. Unemployment needs to rise and labor demand must cool off to help support any potential future of a 2% inflation rate target. 

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