GLOBAL ECONOMICSDAILY POINTS

Key arguments

• US August CPI is the pivotal input for September FOMC pricing, with Scotia's core m/m estimate at 0.3% versus consensus of 0.2% and a small minority at 0.1%.
• Stronger oil prices are a relative price shock rather than generalized inflation, because US nominal wage growth of just 3.1% y/y and negative real house price wealth effects erode real incomes and cap second-round effects.
• US firms respond more aggressively to cost pressure via cost cuts, productivity and margin absorption, and holiday goods were largely contracted at pre-surge input prices.
• The AI-driven surge in related prices explains much of the core PCE overshoot; excluding computers, software and portfolio management gives a different core PCE trend.
• Data quality concerns persist, with nearly 40% of the US CPI basket now made up using less precise imputation methods, a record high.
• UK July GDP, industrial, construction, services and trade data all beat consensus, but sterling and gilts ignored the stale releases and tracked lower oil instead.
• Canada is presented as having a more pro-business investment agenda, lower deficits and debt versus the US administration, whose procurement and tariff measures are labelled modest.

Corresponding source evidence

1. • AI’s relative price surge explains the core PCE overshoot • This is more of a relative price shock than generalized inflation … • ...which matters enormously to how the Fed should respond • Who has the more business friendly administration?
2. Lower oil prices are driving a more favourable tone across global markets so far this morning as they await US CPI.
3. US Treasury yields are lower by 2–3bps across the curve, CGB yields are down by 1–2bps, gilts and EGBs are outperforming.