Higher US tariffs have started to filter through to consumers in categories such as household furnishings and recreational goods. But a separate measure of core services inflation has so far remained tame. Still, many economists expect higher import duties to keep gradually feeding through.
That’s the dilemma for Federal Reserve officials who’ve kept interest rates unchanged this year in hopes of gaining clarity on whether tariffs will lead to sustained inflation. At the same time, the labor market — the other half of their dual policy mandate — is showing signs of losing momentum.
As concerns build about the durability of the job market, many companies are exploring ways to limit the tariff pass-through to price-sensitive consumers. Economists expect government figures on Friday to show a solid gain in July retail sales as incentives helped fuel vehicle purchases and Amazon’s Prime Day sale drew in online shoppers.
What Bloomberg Economics Says: “One reason firms are having trouble hiking prices is that households’ real disposable income growth has been dismal — running at a third of the pandemic peak. Incorporating payroll revisions, we estimate that real income growth actually contracted in June. Yet nominal retail sales were likely robust in July. We caution against equating a strong headline print with resilient consumption.”—Anna Wong, Stuart Paul, Eliza Winger, Estelle Ou and Chris G. Collins, economists.
Excluding auto dealers, economists have penciled in a more moderate advance. And when adjusted for price changes, the retail sales figures will likely underscore an uninspiring consumer spending environment.
Among other economic data in the coming week, a Fed report is likely to show stagnant factory output as manufacturers contend with evolving tariffs policy.
A preliminary trade truce between the US and China is set to expire on Tuesday, but a move to extend the detente is still possible.
The Bank of Canada will release a summary of the deliberations that led it to hold its benchmark rate at 2.75% for a third consecutive meeting; it also left the door open to more cuts if the economy weakens and inflation is contained. Home sales data for July will reveal whether sales gains continued for a third straight month.
Elsewhere, several Chinese data releases, gross domestic product readings for the UK and Switzerland, and a possible rate cut in Australia are among the highlights.
