Main Topic: U.S. inflation and the Federal Reserve's efforts to control it.
Key Points:
1. U.S. inflation has declined for 12 straight months, but consumer prices increased 3% year-on-year in June.
2. The Federal Reserve aims to reduce inflation to about 2% and plans to raise its key federal funds rate to over 5%.
3. The Fed is concerned about high inflation due to a strong labor market, rising wages, and increased consumer spending, and aims to slow the job market to control inflation.
The fall in the value of the Pakistani rupee against the US dollar is expected to cause a surge in inflation, with petrol and diesel prices projected to increase by over Rs13 per litre due to the exchange rate, potentially reaching double digits if the dollar continues to appreciate. Additionally, the rise in dollar value will also lead to further increases in electricity tariffs, making the lives of citizens more difficult.
India's finance minister, Nirmala Sitharaman, prioritizes taming inflation for sustained economic growth but highlights that using interest rates as the sole tool to tackle inflation has limitations, emphasizing the need to address supply-side factors as well; she also stresses the importance of boosting investments and diversifying supply chains for global economic recovery.
Pakistan's weekly inflation remained up at 0.05 percent week-on-week and 25.34 percent year-on-year, driven by rising food prices, particularly onions, pulse masoor, sugar, garlic, and eggs.
US inflation remains above 3% as the cost of goods and services rose by 0.2% in July, prompting speculation that the Federal Reserve may freeze interest rates to manage inflation without causing a recession.
The consistent devaluation of the Pakistani rupee is causing inflation and forcing the central bank to raise interest rates, leading to concerns about the economy and market confidence.
The relentless surge in pressure on the exchange rate and price level in Pakistan over the past two and a half years can be attributed to serious malfunctions on the balance of payments and fiscal accounts, which have thrown the monetary aggregates far from their projected path to stability. This has led to inflation and exchange rate pressure, and traditional IMF-mandated adjustments alone may not be enough to resolve the situation.
Pakistan's inflation rate remained above target in August at 27.4%, driven by reforms linked to an IMF loan that have fueled price pressures and declines in the rupee currency.
The current economic crisis in Pakistan is driven by high inflation, mismanaged policies, and failure to ensure price stability, leading to a weakened currency and a struggling middle class, but implementing radical reforms such as demonetization and swapping out foreign currency debt can potentially alleviate the situation and revive the economy.
Pakistan's interim government is prioritizing economic revival and fulfilling international obligations, including agreements with the International Monetary Fund (IMF), to address the stagnant economy and financial issues. They aim to improve the overall business and investment environment, increase inflow of dollars from multilateral institutions, and reduce expenditures while upholding international agreements.
Pakistan's central bank is expected to raise interest rates to address inflation and bolster foreign exchange reserves, following a series of rate hikes earlier this year in response to economic and political crises.
The Bureau of Labor Statistics is expected to release a report showing steady growth in consumer prices with a year-on-year inflation increase of 3.6% in August, indicating that the Federal Reserve's efforts to control inflation are working but there may be more rate hikes if inflation does not decline.
Russia's economy ministry has raised its 2023 inflation forecast from 5.3% to 7.5% due to the impact of the war in Ukraine, and President Putin has acknowledged that high inflation is causing difficulties for businesses.
The Pakistani rupee has depreciated significantly in the first three weeks of the interim government's tenure, reaching a record low and making it the worst-performing Asian currency this quarter, due to factors such as a change in government and high inflation. The State Bank of Pakistan is implementing measures to address the economic challenges, including reforming the exchange rate and modernizing the banking system.
The State Bank of Pakistan has announced that it will maintain its key policy rate at 22%, citing a continuing declining trend in inflation, improved agricultural outlook, and recent administrative and regulatory measures to address supply constraints and illegal activity. The bank hopes that inflation will subsequently decline in October.
Israel's annual inflation increased to 4.1% in August, surpassing the central bank's target range of 1%-3%, as consumer prices rose by 0.5%, driven by increases in the cost of fresh vegetables, culture and entertainment, transportation, and housing.
Nigeria's annual inflation rate reaches an 18-year high of 25.8% in August due to the removal of subsidies and rising prices, posing challenges for the country's largest economy.
The short-term inflation in Pakistan increased by 26.25% due to a rise in the retail price of vegetables, particularly tomatoes and onions, caused by the closure of the Torkham border with Afghanistan.
The caretaker government of Pakistan has raised petrol and diesel prices to record levels, leading to a surge in inflation and impacting the prices of essential commodities, while the country continues to invest in and expand its nuclear weapons program.
The unprecedented increase in fuel prices in Pakistan is expected to cause a significant rise in inflation, with the Consumer Price Index projected to reach as high as 30% to 32% in September 2023.
Economists predict that Canada's inflation rate is likely to increase to around four percent in August, mainly due to higher gasoline prices, reversing the previous progress made.
Pakistan's exports saw a significant increase of 22.45% in the first two months of the fiscal year 2023-24, reaching Rs1.27 trillion, while imports decreased by 2.42%.
Pakistan's poverty rate has risen to 39.4% with 12.5 million more people falling below the poverty line, prompting the World Bank to urge the country to take urgent steps to achieve financial stability by taxing agriculture and real estate and cutting wasteful expenditures.
Pakistan is facing a major economic crisis with high inflation, insufficient public resources, and policy decisions influenced by vested interests, according to the World Bank. The country needs to make hard choices and prioritize coordinated, efficient, and adequately financed service delivery to improve human development outcomes. Additionally, the Pakistani Rupee has reached a record low against the US dollar.
Australian consumer inflation grew as expected in August, driven by surging energy and housing costs, raising speculation that the Reserve Bank may need to further increase interest rates.
The inflationary environment in Pakistan is causing significant challenges for small businesses, particularly those run by women entrepreneurs, forcing them to raise prices or take out loans to manage expenses and protect profit margins, resulting in declining sales and financial hardship.
Turkish annual consumer price inflation rises for the third consecutive month, reaching 61.53% in September due to recent tax hikes and lira weakness, just below expectations; economists predict inflation to reach 70% by year-end.
Pakistan's central government debt has risen by almost a third to reach close to Rs64 trillion, with domestic debt accounting for most of the increase and impacting funds available for development and economic growth.
The Pakistani rupee is expected to strengthen further, potentially falling below 280 against the US dollar, due to factors such as the anticipation of the IMF's next tranche, improved balance of payments, and government actions against illegal dollar trade.
The International Monetary Fund (IMF) expects Pakistan's economy to perform better than expected, with a growth of 2.5% this year and 5% in the next fiscal year, despite macroeconomic challenges, surpassing projections from other multilateral agencies. The IMF also maintains a global growth forecast of 3% for this year but warns of high inflation and downgrades outlooks for China and Germany.
Wholesale level inflation surged more than expected in September, indicating the challenge of controlling price pressures in the economy, which has implications for the Federal Reserve's interest rate decisions.
The U.S. government's upcoming inflation report is expected to show a cooling off of inflation, with overall prices for consumers rising by 0.2% compared to August and 3.6% compared to a year ago, and core inflation expected to be up 4.1% from September last year, indicating slower price increases in September than in August.
The upcoming monthly inflation report is expected to show that inflation in the US is cooling off, with overall prices for consumers rising by 0.2% compared to August and 3.6% compared to a year ago, indicating slower price increases in September than in August. However, if the report reveals that inflation remained higher than expected, especially in core areas, it may prompt the Federal Reserve to raise interest rates again, further slowing the economy.
Short-term inflation in Pakistan reached a new high for the fifth consecutive week due to rising prices of petroleum products and other essential items, potentially impacting various sectors such as transportation.
The Pakistani rupee is expected to gain further strength against the US dollar as the next IMF review approaches, with analysts predicting continued appreciation in a controlled environment. The IMF review in November will determine if the rupee's performance can be sustained, and the currency has already experienced a 1.43% rise over the last five sessions.
US inflation rose 3.7% in September, surpassing economists' expectations and remaining well above the Federal Reserve's target of 2%.
Nigeria's annual inflation rate rose to its highest level in two decades at 26.72% in September, driven by soaring food prices and the impact of President Bola Tinubu's policy reforms.
Canada's annual inflation rate falls to 3.8% in September, grocery prices rise more slowly.
Canada's inflation rate decelerated to 3.8% in September, lower than economists were expecting, due to lower prices for various goods and services, including travel, durable goods, and some grocery items.
Canada's inflation rate slowed to 3.8% in September, supporting predictions of the Bank of Canada keeping interest rates steady.
Canada's annual inflation rate unexpectedly slowed to 3.8% in September, leading to reduced expectations for an interest rate hike next week.
Canada's inflation rate dropped to 3.8% in September, allowing the Bank of Canada to maintain its current interest rate.
Gas tariffs are set to increase by up to 100% for different consumers in Pakistan to control mounting circular debt, fulfilling IMF conditions but potentially fueling inflation.
UK inflation unexpectedly holds at 6.7% in September, keeping the possibility of another interest rate hike alive, driven by a rise in petrol prices and robust core inflation and services prices.
The government of Pakistan is convening a meeting to discuss and approve a significant increase in fixed monthly charges and consumer rates for natural gas, amounting to a surge of 3,900% and 194% respectively, which will be implemented retroactively from October 1.
