Weekly Digest: U.S. Inflation Runs Cooler, Pressure on Fed to Ease Hikes


4 minutes read

Aug 12, 2022

The building of the Fed photographed as the US inflation comes out lower than expected in July despite expectations.

13/08/22: U.S. inflation came out lower than expected in July but price pressures remain strong, the Fed says more rate hikes are needed, over 60 countries are struggling to afford food imports. And more.

Investment news

US inflation cools down in July as shown in the picture of a cartoon man climbing the red arrow with a shopping cart

⬆️U.S. inflation rose 8.5% in July from a year ago, below expectations, due largely to falling energy prices. But even with the lower-than-expected numbers, inflation pressures remain strong. (CNBC)

With the increase in the food index, the annual growth rate reached 10.9%, which is the highest rate since May 1979.

Despite the energy index's monthly decline, power costs increased by 1.6% and were 15.2% higher than they were a year earlier. From a year earlier, the energy index increased 32.9%.

Here’s what you need to know to understand inflation.

The gold price rose over the week, even though the U.S. dollar and Treasury yields rebounded after the Fed hinted at further interest rate hikes to curb high inflation.

Here’s how the prices of gold, silver, platinum, and palladium have changed over the past week:

a table showing how the price of gold, silver, platinum, and palladium have changed over the past week.

Despite the fact that inflation came out lower than expected, Fed officials say more rate hikes are needed. The Fed is "far, far away from declaring victory" on inflation, Minneapolis Federal Reserve Bank President Neel Kashkari said. (Reuters)

This year, the Fed has hiked interest rates three times. Prior to the 0.25 percentage point rate boost in March, the first in more than three years, the pandemic's shutdown of the economy had kept rates near zero.

Read our SPOTLIGHT to learn more about interest rate hikes and their impact on your investments.

The U.K. economy contracted in the second quarter of 2022 as the country’s cost-of-living crisis deepened. According to official data released on Friday, the U.K’s GDP decreased by 0.1% quarterly. The news comes after the Bank of England warned it expects the U.K. economy to enter its longest recession since the global financial crisis by the end of the year. (CNBC)

“U.K. growth is stagnating as the economy faces challenges from a severe real income squeeze amid elevated inflation and higher interest rates. In this backdrop, it will be difficult to dodge recession, especially with upside risks to energy prices heading into the winter,” said Hussain Mehdi, macro and investment strategist at HSBC Asset Management.

New trade restrictions put in place by Beijing against Taiwan following Pelosi's visit are a drop in the ocean 💧 as they affect about 0.04% of their two-way trade. Restrictions included suspensions of imports of Taiwanese citrus, sweets, frozen fish and biscuits, as well as exports of natural sands to Taiwan. (CNBC)

The new regulations should have little impact on commerce between Taiwan and mainland China, but increased military exercises in the Taiwan Strait might cause delays in shipments, according to experts.

Liz Truss who is competing to replace Johnson as UK's prime minister plans to shake up the Bank of England

Liz Truss’s plans on how to manage the Bank of England are adding to a growing list of threats to the value of the pound and U.K. government bonds. Truss, who is leading in the race to replace Boris Johnson as prime minister, has stepped up calls for a review the central bank’s remit and potentially a new money supply target. (Bloomberg)

“You’d see a sell off in gilts and a sell off in sterling too” if there was a change to the mandate. We aren’t taking it terribly seriously, but markets can be complacent about these things,” said Gordon Shannon, portfolio manager at TwentyFour Asset Management.


Don't get too excited about the good news about inflation: “Core inflation remains stubborn, and the Fed cares less about headline numbers than sticky prices. They’re still moving upward.” (Bloomberg Opinion)

“Even if the [inflation] peak has been scaled, the issue of the descent now confronts us. And it will be difficult. Although undeniably positive, this consumer price index report is not a big game-changer, and it’s unlikely to have much impact on how the Federal Reserve behaves for the rest of the year,” writes Bloomberg’s John Authers.

What else is happening

A man is calculating his expenses with a small cart standing next to him as 60 nations struggle to buy food

More than 60 nations struggle to afford food imports, according to a special U.N. task group established earlier this year to address increasing food shortages following Russia's invasion of Ukraine. "In Sierra Leone, poorer people’s consumption of nutritious foods is decreasing as a result of increased prices. Similar risks are being reported from Colombia, Congo, Chad, Ecuador, Iraq, Kenya, Malawi and Mauretania," the document reads. (POLITICO)

It continues: "Consumer organizations report that prices are increasing ever more rapidly in Pakistan, Myanmar, Peru, Malawi, Burundi and Nigeria with increasing numbers of people paying 'over the odds' for basic necessities. Around 12 governments are close to default on debt repayments and many seek opportunities for debt relief."

US President Joe Biden is photographed in hos office after signing protocols for Sweden’s and Finland’s accession to NATO.

President Joe Biden signed NATO accession protocols for Finland and Sweden, moving the defense alliance closer to adding two wealthy, militarily advanced members amid Russia’s ongoing invasion of Ukraine. (POLITICO)

“Together with our allies and partners, we’re going to write the future we want to see, and in a moment when Putin’s Russia has shattered peace and security in Europe — when autocrats are challenging the very foundations of a rule-based order — the strength of the transatlantic alliance and America’s commitment to NATO is more important than it’s ever been,” Biden said before signing the protocols.

Read our SPOTLIGHT to see how the current geopolitical tensions could affect the price of gold and the global economy.

And finally…

A photo of the coastal glaciers of Antarctica that are losing icebergs faster than nature can restore the melting ice

A satellite study revealed that over the past 25 years, the world's greatest ice sheet has lost twice as much ice as previously thought because the coastal glaciers of Antarctica are losing icebergs faster than nature can restore the melting ice. (Reuters)

"Antarctica is crumbling at its edges. And when ice shelves dwindle and weaken, the continent's massive glaciers tend to speed up and increase the rate of global sea level rise,” according to JPL scientist Chad Greene, the study's lead author.


See you next week!


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