Week Ending July 16th, 2021

Major stock indices ended the week lower as the June's CPI report released last week showed that the core CPI jumped 0.9% in June. Core CPI increased by 4.5% on yearly basis, the highest level since 1991. I think June's report renewed the inflation worries and participants have less reasons to believe in the FED's narrative on inflation.

Although there are temporary supply factors responsible for some of the upside surprises in inflation data, and many economists are suggesting not to read too much into the monthly numbers, but the markets look concerned that the rise in inflation may last longer than being expected.

If rising wages start to show up more broadly in the inflation numbers ahead, the Fed will have no excuse not to slam on brakes resulting into a policy mistake. If the "temporary bottlenecks" stay for longer I think the workers will bargain more for higher wages to cover their rising cost of living, and rising wages and prices will keep on feeding on one another.

The US housing market will take the center stage this week with the release of data on housing starts, building permits and existing home sales.