This week has been considerably quieter economic data front, perhaps a relief given the volume of negative news recently.
US inflation figures were released on Wednesday with consumer prices rising 8.5% in July, the rate of increase has been calmed slightly as fuel prices fell. No increase was recorded in CPI between June and July, another positive sign of relief for the US, and although inflation is still near 40-year highs, inflation figures were lower than analyst estimates. Although not yet cause for celebration, better than expected figures send positive signals to the market.
In terms of the next Federal Reserve interest rate decision, not much has changed given this data release. Although better than expected, the Fed is yet to see the material decrease in inflation that it is looking for, meaning another 0.75% rise in September remains very much on the cards.
In other good news for the USA, a strong jobs report last Friday in the US has indicated that unemployment has returned to a 50-year low and staved off discussion of recession despite signalling there is still work to be done in the fight against inflation. The dollar strengthened to $1.0300 against the Euro as it continues to meet resistance at the $1.04 level.
China’s CPI reading was also lower than expected at 2.7% for July, 0.2% below consensus estimates. Although Chinese inflation is reaching the highest readings in two years, it has been spared much of the price misery that has affected the rest of the world. Continuous lockdowns as part of the Zero-Covid policy have weakened consumer demand while producer prices only rose 4.2% compared to a 4.5% analyst expectation.
The UK has not had quite such a pleasant week despite the warm weather. The cost of living crisis continues to bite amid strike action, falling GDP and winter energy bill predictions continuing to climb higher.
Data released today showed that the UK economy had contracted in the second quarter by 0.1% with a sharper hit towards the end of Q2 as GDP fell by 0.6% in June. Consumption was down 0.2% while the trade deficit has hit the worst levels since records began in 1997.
The gap between imports and exports is now equivalent to 4.5% of national income or £27.9bn. Positively, business investment was up 3.8% but this indicator has been erratic in recent quarters as the effects of Brexit and the pandemic continue to have an impact.
Average household energy bills are now estimated to be above £5,000 next year as pressure continues to build on the government to take action. PM Boris Johnson has insisted he will not make major policy changes until his successor takes office on September 5th. The idea of a windfall tax has now crossed into the public domain again as record profits for energy companies amid rising prices provide an opportunity for the Treasury to find some money to reduce household bills.
The UK energy consumer market is typically less protected by government action than those in the EU and more exposed to the energy crisis than US consumers. All eyes are now on the energy price cap, as dictated by Ofgem, which will be reviewed and adjusted on the 26th August.
Although energy prices remain problematic, there have been some minor successes at the pump. Fuel is down 8% in the UK, 9% in the EU and 12% in the US as upheaval in the oil market becomes more muted as the Ukraine war becomes more constant. The US consumes around a fifth of the world’s oil and so the fall in prices to under $4 had a material impact on inflation. Significant political action has enabled fuel prices to stabilise and future reductions in prices would hopefully signify slowing inflation.
Finally, this week the Commonwealth Games in Birmingham ended. England finished second in the medal table, just two medals behind the winners Australia. As athletics continues its fightback from the pandemic, the Games have been heralded as a great success with 1.5 million tickets sold, the highest number for a Commonwealth Games held in the UK, and a record 57.1 million online streams.