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Did US inflation accelerate in July?
After June’s surprisingly large drop in inflation which sparked widespread relief in markets, investors are braced for a re-acceleration of price growth that could pressure the Federal Reserve to raise interest rates again in September.
The Bureau of Labor Statistics on Thursday will release its latest US consumer price index report, which is expected to show that annual headline inflation was 3.3 per cent in July, according to economists surveyed by Reuters. That would mark an increase in from 3 per cent in June, and the first acceleration in the headline figure since June 2022.
Core CPI, a measure which strips out the volatile food and energy sectors, is expected to be flat at 4.8 per cent, according to economists surveyed by Reuters. Core inflation has remained stubbornly high and will be central to the Fed’s discussions when it considers raising interest rates in September.
Barclays analysts argue that a CPI release in line with their expectations — 3.2 per cent headline and 4.8 per cent core — would align with an increase in interest rates from the Fed in September. But July’s CPI release is just one of many data points to come before then, and a soft reading in August may ultimately outweigh July’s numbers, they said. Kate Duguid
Will China fall into deflation?
With Chinese growth lagging expectations, investors are paying close attention to official economic data that previously had little impact on market sentiment.
On Wednesday, markets will get two such indicators in the form of consumer and producer price indices.
Analysts at S&P Global Market Intelligence warned that lacklustre inflation in China could add to downward pressure on business margins.
They predicted the upcoming readings would “confirm the extent to which inflation is lacking, especially for a market closely watching the disappointing recovery in mainland China”.
After coming in flat last month, consumer prices in China are tipped to enter deflationary territory for the first time in nearly two and a half years, with economists polled by Bloomberg forecasting a year-on-year fall of 0.5 per cent in July. Deflation for producer prices is expected to moderate slightly to 4 per cent, compared with a year-on-year fall of 5.4 per cent in June.
Xiaoqing Pi, China economist at Bank of America, said high prices from a year ago, together with falling fruit and vegetable prices, would probably help drag the headline reading on consumer inflation into negative territory. She added that core CPI, which strips out food and fuel prices, was also likely to remain muted “despite booming summer travel.” Hudson Lockett
Did the UK economy grow in the second quarter?
Investors will pick through the UK’s second-quarter GDP figures on Friday for the latest signs of how close the Bank of England might be to the end of its interest rate rising cycle, following its decision to lift rates to 5.25 per cent this week.
Economists polled by Reuters predict the economy grew at an annual rate of 0.2 per cent in the three months to June, marginally ahead of the Bank of England’s forecast for a 0.1 per cent rise.
The figures come after the Bank of England increased its economic projections for this year but lowered its expectations for next year and 2025, as the impact of higher interest rates increasingly feed through.
The BoE forecast the UK economy will grow by 0.5 per cent this year, up from 0.25 per cent in its May forecast. It also forecast 0.5 per cent growth next year, and 0.25 per cent in 2025, down from a previous level of 0.75 per cent for both years. “Economic activity has shown some unexpected resilience over recent quarters but the increases in bank rate that we have implemented weigh to an increasing degree on economic activity,” Andrew Bailey, BoE governor, said in a press conference after the interest rate announcement. “We have to balance the risks here. There are inflation risks on the upside, but we are also conscious that the projection for activity has weakened.”
But some economists think the BoE — and markets — are too optimistic on growth.
“Our expectations are for zero growth both on a monthly basis and also for the second quarter as a whole,” said Philip Shaw of Investec.
Markets are currently pricing in roughly two-thirds chance of a 0.25 percentage point increase in September, and one-third probability of a pause. Mary McDougall
