Just when the markets were warming up to the idea of a September rate cut, the latest U.S. retail inflation data landed like a bucket of ice water. Core consumer prices in the U.S. remain stubbornly high, rising more than expected and dimming the chances of any near-term policy easing by the Federal Reserve.
And it’s not just a domestic issue anymore — the global dominoes are already wobbling.
What the US Inflation Numbers Say
The recent data shows that U.S. core CPI rose 0.3% month-on-month, above consensus estimates. Year-on-year, inflation remains well above the Fed's 2% target. Sticky service inflation and a strong labor market continue to complicate the Fed’s balancing act — it wants to tame inflation without derailing growth, but the numbers suggest inflation isn’t cooling fast enough.
This means the long-anticipated rate cut in September is likely off the table, at least for now — something that former President Donald Trump has been actively lobbying for, both politically and economically, to boost sentiment ahead of the 2024 elections.
India’s CPI vs the World: A Mixed Bag
In contrast, India’s retail inflation has shown signs of softening, thanks to a favorable base effect and easing food prices. June CPI came in lower than expected, adding weight to the market’s hope that the RBI could consider a rate cut in the second half of FY26.
However, India is still not isolated from global pressures. A surge in crude oil prices due to robust global demand could creep into transport and logistics costs in India, pushing inflation back up. Add to that the renewed risk of trade wars and tariffs — especially if Trump regains power — and India could face fresh cost pressures.
Global Perspective: Inflation and Tariff Turbulence
Europe too is battling its own inflation demons, albeit with slightly better success than the US. But here’s where it gets interesting: the US is reportedly seeking separate trade deals with India, bypassing multilateral channels. That could be both an opportunity and a challenge.
If inflation stays high and trade wars intensify, we may see protectionist policies rise again, further fuelling price pressures globally. Tariffs could raise import prices, nullifying gains made on the domestic inflation front.
What to Watch Next
- Fed’s Jackson Hole speech in August will be key to gauging the central bank's mood.
- Trump’s economic rhetoric will likely intensify — watch for calls to weaken the Fed or shift blame.
- India’s WPI and CPI trends could guide the RBI’s stance; a dovish tilt may emerge if domestic prices remain under control.
- Crude oil movements and any escalation in tariff threats will be vital external triggers.
Final Take
Inflation is no longer just an economic indicator — it’s a geopolitical tool. The Fed’s unwillingness to rush into rate cuts has caught global markets off guard, and Trump’s ambitions are now at odds with macro reality. Meanwhile, India must navigate this complex maze of softening local prices, surging oil, and shifting global trade dynamics.
In short, the inflation story isn’t over — it’s just getting more political.
Disclaimer
This blog is purely for educational purposes and should not be considered investment advice. Please do your own research or consult a registered financial advisor before making any investment decisions.