The global disinflation narrative received an important boost last week. June U.S. inflation cooled sharply, headline CPI fell to 3.5% year over year, and core inflation eased further. The data strengthened the argument that underlying U.S. price pressures are moving in the right direction, even as the labor market slows without collapsing. June payrolls increased by 57,000 and unemployment held at 4.2%, leaving the Federal Reserve with a softer inflation backdrop but no immediate labor-market emergency.
Then the geopolitical backdrop deteriorated again.
WTI crude settled at $82.49 on Friday, rising $3.54 on the day and $11.08 over the week. Fighting between the United States and Iran has intensified, commercial traffic through the Strait of Hormuz remains severely disrupted, and the risk premium attached to global energy supplies is rising again.
That creates the central question for the week ahead:
Can central banks look through another energy shock, or is underlying inflation already too persistent for them to wait?
The calendar delivers Canadian inflation, New Zealand inflation, UK labor-market data, UK CPI, an ECB decision, Australian employment, Japanese CPI and global flash PMIs. Together, these releases will show which economies entered the latest oil escalation with enough disinflationary momentum to absorb it, and which were already vulnerable to a renewed inflation problem.
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