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.
Brazil's annual inflation accelerated more than expected in August, reaching 4.24%, as the central bank continues to cut interest rates in its efforts to boost the economy.
Australia's inflation slowed to a 17-month low in July due to declines in holiday travel and fuel prices, leading to expectations that the Reserve Bank of Australia will pause its rate hikes, signaling a potential end to tightening measures.
US job and wage growth slowed in August, but the Federal Reserve's efforts to control inflation and prevent a recession seem to be working as planned. The unemployment rate increased to 3.8 percent, but this is viewed as a positive sign by the Fed.
UK inflation has slowed to a 17-month low of 6.8%, prompting expectations of potential interest rate cuts and concerns about the impact on house prices and mortgage rates.
Central banks across major developed and emerging economies took a breather in August with lower interest rate hikes amid diverging growth outlooks and inflation risks, while some countries like Brazil and China cut rates, and others including Turkey and Russia raised rates to combat currency weakness and high inflation.
The US economy grew modestly in July and August, with signs of consumers relying more on borrowing to support spending after depleting their savings, while inflation slowed due to decreasing price pressures in the goods sector, according to the Federal Reserve's Beige Book report.
Inflation has decreased significantly in recent months, but the role of the Federal Reserve in this decline is questionable as there is little evidence to suggest that higher interest rates led to lower prices and curtailed demand or employment. Other factors such as falling energy prices and the healing of disrupted supply chains appear to have had a larger impact on slowing inflation.
Mexico's finance ministry expects the country's economy to grow between 2.5% and 3.5% next year, with inflation slowing to 3.8%, according to a draft budget document released by the ministry.
US inflation has slowed over the past year and wages are not a reliable indicator of future price increases, according to Federal Reserve officials.
The Consumer Price Index is expected to show an increase in inflation in August, with headline inflation rising to 3.6% and core inflation easing to 4.4%, but the market is accustomed to this trend and the Federal Reserve is unlikely to change its rates at the upcoming meeting.
Brazil's annual inflation in August was lower than expected, giving the central bank more leeway to extend interest rate cuts at their upcoming policy meeting.
Japan's annual wholesale inflation slowed for the eighth consecutive month in August, providing relief for households and retailers affected by previous increases in raw material imports.
Despite a spike in gas prices, the rise in inflation appears to be easing gradually, with core prices exhibiting a slower increase in August compared to July, suggesting that price pressures are being brought under control.
Inflation is expected to fall below the Federal Reserve's 2% target by late next year, despite a recent rise in consumer prices driven by increased energy costs.
Cryptocurrency prices remained stable as inflation in the U.S. surpassed economists' expectations, with Bitcoin trading at around $26,100 and Ethereum experiencing a slight dip of 0.5%. The Federal Reserve will consider this report, among other factors, for its upcoming interest rate announcement on September 20. While inflation has decreased since June, it still exceeds the Fed's target of 2% annually. Core inflation, excluding volatile food and energy costs, decreased to 4.3% in August compared to July's 4.7%.
Inflation in the US accelerated for the second consecutive month in August due to rising costs of rent and gasoline, with the consumer price index rising 0.6% from the previous month and 3.7% from the same time last year.
Wholesale inflation in the U.S. accelerates for the second month in a row, with the Producer Price Index rising to 1.6% and indicating that inflation is not yet in line with the Federal Reserve's target of 2%.
US inflation is expected to continue its slowdown in the coming months due to easing car prices, declining rents, and a potential slowdown in the job market.
Despite elevated inflation, the Federal Reserve is not expected to lower interest rates soon, causing the Consumer Price Index to rise significantly and impacting mortgage rates and home prices.
The U.S. Federal Reserve kept interest rates steady but left room for potential rate hikes, as they see progress in fighting inflation and aim to bring it down to the target level of 2 percent; however, officials projected a higher growth rate of 2.1 percent for this year and suggested that core inflation will hit 3.7 percent this year before falling in 2024 and reaching the target range by 2026.
Japan's core inflation remained steady in August, staying above the central bank's 2% target for the 17th consecutive month, signaling broadening price pressure and potentially increasing the case for an exit from ultra-easy monetary policy.
The Federal Reserve's measure of inflation is disconnected from market conditions, increasing the likelihood of a recession, according to Duke University finance professor Campbell Harvey. If the central bank continues to raise interest rates based on this flawed inflation gauge, the severity of the economic downturn could worsen.
Despite predictions of higher unemployment and dire consequences, the Federal Reserve's rate hikes have succeeded in substantially slowing inflation without causing significant harm to the job market and economy.
Germany's inflation rate in September slowed to the lowest level since Russia invaded Ukraine, potentially leading the European Central Bank to reconsider its interest rate hikes.
Euro zone annual inflation dropped to its lowest level since October 2021, falling to 4.3% in September, while core inflation decreased to 4.5%, prompting uncertainty over potential rate cuts by the European Central Bank.
Japan's core inflation slowed for the third consecutive month in September, mainly due to falling fuel costs, providing some relief for the fragile economic recovery; however, factory output remained flat in August, indicating the negative impact of weak global demand and China's economy.
The European Central Bank's efforts to curb inflation through interest rate hikes have led to the lowest inflation rate in the euro zone in two years, indicating a potential slowdown in economic growth.
The Federal Reserve's preferred measure of inflation decreased in August, indicating that efforts to combat inflation are progressing, although there are still price growth pressures that could lead to further interest rate hikes by the central bank.
Consumer spending in the US increased by 0.4% in August, while core inflation fell below 4.0% for the first time in over two years, potentially reducing the likelihood of an interest rate hike by the Federal Reserve.
Overall inflation has moderated recently in the United States and euro area, but core inflation remains sticky, creating a challenge for central banks trying to meet their inflation targets. Financial conditions have eased, complicating the fight against inflation by preventing a slowdown in aggregate demand. The combination of loose financial conditions and a monetary policy tightening cycle may have dulled the effectiveness of monetary policy. There are risks of a repricing of risk assets and potential vulnerabilities in the financial sector, emphasizing the need for central banks to remain determined in their fight against inflation.
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