Has US inflation slowed for the second consecutive month?

Lower gasoline prices should have helped slow the pace of inflation in the United States in August for the second month in a row. But the Federal Reserve is unlikely to be deterred from implementing a sharp interest rate hike later in September as inflation remains well above target with continued growth in services prices.

Economists polled by Reuters forecast the US consumer price index fell 0.1% month-on-month in August, after remaining flat in July. They expect a year-on-year reading of 8.1% for August, up from 8.5% a month earlier.

Lower energy prices were largely responsible for lower inflation in July, and the same trend is expected to have continued the following month as gasoline prices fell further.

Some economists have said that consumers have started spending less on goods, while companies have increased the supply of their products to meet demand, which may also contribute to lower price growth.

“Inflationary pressure on goods prices has clearly eased and some overheated prices, for example used cars, are starting to fall in absolute terms,” said Solita Marcelli, Americas investment director at UBS Global. WealthManagement.

But despite the moderation expected in the August report, the Fed still signaled that it would continue to tighten monetary policy, with inflation remaining well above the central bank’s target. Chairman Jay Powell and Vice Chairman Lael Brainard pledged last week to keep raising rates, fueling expectations that a third consecutive 0.75 percentage point hike will be implemented later this month.

Demand for services has strengthened, which Marcelli says has caused “more persistent pressure” on this component of the consumer price index.

Core inflation, which excludes energy and food prices, is expected to edge up 0.4% month on month in August, after reading 0.3% in July.

Housing costs are a major contributor to the services component of the index and housing costs are expected to continue to rise, driven by rising rental prices.

“The biggest single contribution to the monthly print of core CPI will come from housing rents,” said Ian Shepherdson of Pantheon Economics. “But we see a decent chance that the pace of rent increases has now peaked, although the uncertainty here is still high, given the unprecedented rental market conditions.” Alexandra White

Did British inflation accelerate in August?

UK inflation data for August is expected to offer no respite. Economists polled by Reuters expect the annual pace of consumer price growth to have accelerated from a 40-year high of 10.1% in July to 10.4% last month.

A consumer price index at this level would confirm that the UK is the only G7 economy with double-digit inflation. It would also intensify pressure on the Bank of England to raise interest rates again, having already implemented six consecutive increases to 1.75%.

The inflation outlook for the UK and the rest of Europe has deteriorated over the summer, reflecting the spike in wholesale gas prices in Europe following a squeeze on Russian energy flows to the rest of the continent. Even before gasoline prices peaked in late August, the BoE had forecast inflation to climb to 13% in January, triggering a prolonged economic recession.

However, the medium-term inflation forecast was dampened to some extent by an energy package announced last week by new UK Prime Minister Liz Truss, which included a freeze on average annual household energy bills to 2,500 £ over the next two years.

The Truss government expects the intervention to curb inflation by up to 5 percentage points.

Paul Dales, chief UK economist at Capital Economics, said the measure would lower the expected peak inflation to 11.5% in November, from 14.5% previously forecast for January, and accelerate the fall in inflation. inflation next year.

However, he thinks that because the stimulus is supporting economic activity, “it will spur inflation further.” Valentina Romei

Did Japan’s trade deficit increase last month?

Soaring commodity prices and rising import costs due to a weaker yen have hit the Japanese economy lately, forcing it to run a trade deficit for 12 consecutive months until the end of July. The big question, as the downward pressure on the currency continues to build, is whether the trend has continued into August.

Japan posted a trade deficit of 1.43 trillion yen ($10 billion) in July and recorded record import costs for the fifth consecutive month. The compensation of a cheaper currency – more competitive exports – has yet to make its final mark. Despite the historic depreciation of the yen, which has weakened by about a fifth against the dollar this year to more than 140 yen, export growth has been limited due to the interruption of production of semiconductors and other component shortages.

Analysts suspect the world’s third-largest economy likely suffered another blow in August, with the yen sliding to a new 24-year low against the US currency in recent days as the Bank of Japan remains committed to its ultra-strong monetary policy. released. policy even as the Federal Reserve continued to raise interest rates.

Economists are divided on whether the trade deficit increased last month. Goldman Sachs economist Naohiko Baba expects the deficit to widen to 2.47 trillion yen, saying export volumes fell slightly year-on-year. Weakening export demand in the United States affected that decision, he added.

Rising Covid-19 cases and subsequent shutdowns in China as well as a drop in production in the country due to drought are likely to affect Japanese exports, he noted.

Citigroup economist Kiichi Murashima, meanwhile, believes the trade deficit narrowed in August as supply constraints eased, boosting car exports. Eri Sugiura