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LGT Navigator: Inflationary pressure in the US increases noticeably once again

July 14, 2021

The latest data on the development of consumer prices in the United States has led to a renewed increase in the weighting of inflation risk on the capital markets. The noticeable increase in inflationary pressure could force the Fed to take a faster and possibly more severe monetary policy turn. Meanwhile, the corporate reporting season got off to a successful start with stronger-than-expected earnings reports from major US banks JPMorgan and Goldman Sachs.

Inflationary pressure in the US increases noticeably once again

On Wall Street, investors were somewhat more cautious on Tuesday in view of a further increase in the inflation rate in the US. As a result, the Dow Jones Industrial -0.31% closed lower at 34,888.79 points, but after the leading index had previously tested the mark of 35,000 points again. The S&P 500 also fell -0.33% to 4,369.21 points but remains just below recent record levels. The same picture was seen on the Nasdaq technology exchange. The same picture was seen on the Nasdaq technology exchange. In Asia, there was no consistent trend in the middle of the week in view of the slightly negative specifications from overseas and increased inflation fears. The focus is now on the corporate earnings season of the American blue-chip companies. Citigroup and Bank of American are two more financial heavyweights reporting their quarterly reports.

US inflation rate at highest level since August 2008

Consumer prices in the United States again rose sharply in June. At +5.4%, the annual inflation rate reached a 13-year high. Analysts had expected the inflation rate to remain unchanged from the previous month at +5.0%. Compared with the previous month, the cost of living rose by an average of +0.9%. The core rate, i.e. excluding energy and food prices, which are susceptible to fluctuations, increased from +3.8% to +4.5% over the year. Here, economists had expected a value of +4.0%. The increasing inflationary pressure could put the Federal Reserve under greater and faster pressure than is currently expected by the Fed itself and on the financial markets. However, the Fed still considers the increasing inflationary pressure to be temporary.

ECB chief Lagarde wants to remain “persistent”

In an interview with the Financial Times, European Central Bank President Christine Lagarde emphasized that in the current environment, persistence is what is needed above all. The main thing now, she said, is to keep a close eye on how headline and core inflation, as well as inflation expectations, are developing. In the event of a negative shock, the ECB would have to act “particularly forcefully,” Lagarde said.

Inflation rate in Germany weakened slightly in June

In Europe's largest economy, consumer price inflation weakened slightly for the first time in June after five months of rising rates. Over the year, the cost of living in Germany rose by +2.3%. In May, the inflation rate had reached its highest level in almost ten years at +2.5%. This was mainly due to special factors such as the above-average rise in energy prices over the past few months because of the base effect of the corona crisis. Other price drivers are the CO2 tax levied since January and the reduction in VAT which expired at the beginning of the year.

In France, the annual inflation rate rose from +1.8% in May to +1.9% in June.

Economic Indicators July 14

MEZ Country Indicator Last period
08:00 UK Consumer Prices (June, y/y) +2.0%
09:00 SP Consumer Prices (June, y/y) +2.4%
11:00 EZ Industrial Production (May, m/m) +0.8%
14:30 US Producer Prices (June, y/y) +6.6%
20:00 US Fed Beige Book


Earnings Calender July 14

Country Company Period
US Citigroup Q2
US Bank of America Q2
US Wells Fargo Q2


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