Eurostat released the July CPI data for the Eurozone on August 20, showing an annual growth rate of 2.6%, slightly up by 0.1% from the previous month and in line with market expectations. The three countries with the lowest annual inflation rates were Finland (0.5%), Latvia (0.8%), and Denmark (1.0%), while the highest rates were observed in Romania (5.8%), Belgium (5.4%), and Hungary (4.1%).

Among the components of the overall CPI, services inflation made the largest contribution, with an annual growth rate of 4.0%, slightly down from 4.1% in the previous month, contributing 1.82 percentage points to the overall CPI increase. This was followed by food, alcohol, and tobacco (0.45 percentage points), non-energy goods (0.19 percentage points), and energy (0.12 percentage points).

According to the European Central Bank’s (ECB) third-quarter professional forecasters’ survey, the CPI growth rate is expected to decline to 2.4% by the end of 2024, with long-term inflation projected to return to the ECB’s 2% target. Additionally, the main refinancing rate is expected to decrease to 3.75% in 2024 (currently 4.25%), with the market anticipating that the ECB will implement a 25 basis point rate cut in both September and December, and further reductions to 3.0% and 2.5% in 2025 and 2026, respectively.

Read more at Datatrack

The People’s Bank of China (PBOC) announced on August 20 that the 1-year and 5-year Loan Prime Rates (LPR) would remain unchanged at 3.35% and 3.85%, respectively, in line with market expectations. In July, the PBOC had lowered the 7-day reverse repo rate, leading to a 10 basis point reduction in both the 1-year and 5-year LPRs, as part of efforts to address the domestic economic slowdown.

However, the economic data for July, released on August 15, continue to raise concerns about China’s economic outlook. Retail sales increased from 2.0% in the previous month to 2.7%, and the year-over-year CPI growth rose from 0.2% to 0.5%. However, the core CPI, which excludes the more volatile food and energy prices, grew by only 0.4%, down from 0.6% in the previous month.

Additionally, the year-over-year growth rates for industrial production, fixed asset investment, and real estate development investment in July were 5.1% (down from 5.3% in June), 3.6% (down from 3.9% in June), and -10.2% (down from -10.1% in June), respectively, indicating a continued downward trend.

The urban survey unemployment rate, released on August 16, showed that the national unemployment rate rose by 0.2% in July compared to the previous month. The unemployment rate for the 16-24 age group, which reflects the employment situation of young people, reached 17.1%, marking a new high since the metric was adjusted in 2023.

Overall, China’s sluggish real estate market continues to weigh on domestic investment, consumer demand, and the labor market. The Chinese government may need to introduce larger-scale fiscal policies and adjust interest rates soon to stabilize the domestic economy and achieve its annual GDP growth target.

The University of Michigan released its Consumer Sentiment Index on August 16th, showing a preliminary reading of 67.8 for August, up slightly by 1.4 points from 66.4 in the previous month. The report indicates that with Kamala Harris replacing Joe Biden as the Democratic presidential nominee, confidence among Democratic supporters rose by 6%, while confidence among Republican supporters fell by 5%.

Regarding future economic developments, 41% of consumers believe that Harris would better support economic growth, while 38% favor Trump. Before Biden’s withdrawal, Trump had a 5-point lead over Biden in terms of economic development.

Overall, the dynamics of the presidential election seem to have a certain impact on consumers’ future expectations, as their outlook for personal finances and the economy over the next five years has reached its highest level in nearly four months.

Despite the increasing focus on the U.S. election, inflation remains the most important issue for consumers. One-year inflation expectations remain at 2.9%, unchanged from the previous month, and within the pre-pandemic range of 2.3% to 3.0%. Long-term inflation expectations have also remained steady at 3.0% for the past five months, slightly above the pre-pandemic range of 2.2% to 2.6%.

The U.S. Census Bureau released retail sales data on August 15. In July, retail sales increased by 2.7% year-over-year, higher than the revised 2% from the previous month. On a month-over-month basis, retail sales rose by 1%, significantly above the revised -0.2% from the previous month and the market expectation of 0.4%. The control group retail sales (excluding auto sales, building materials, gasoline stations, and food services) increased by 0.3% month-over-month, down from the previous month’s 0.9%. The growth was primarily driven by auto sales, which increased by 4% month-over-month, while core retail sales (excluding auto-related sales) and double core retail sales (excluding auto sales and gasoline stations) both increased by 0.4%.

Read more at Datatrack

Additionally, the initial jobless claims data was released on the same day. The number of initial claims for unemployment benefits this week was 227,000, lower than the previous week’s 233,000 and the market expectation of 235,000. This marks the second consecutive week of decline in initial jobless claims.

Read more at Datatrack

As July’s inflation data continues to normalize, consumer spending remains resilient, and initial jobless claims come in better than expected, the probability of a 25 basis point rate cut has returned to 74% (compared to last week’s peak probability of 85% for a 50 basis point cut). However, the market is still awaiting the release of the non-farm payroll data and the unemployment rate, which are currently the Federal Reserve’s top concerns, before expectations for a rate cut in September may be adjusted.

The U.S. Bureau of Labor Statistics released the CPI data on August 14th, showing a year-over-year increase of 2.9% in July, slightly below the data in the previous month and market expectations of 3.0%. The core CPI, which excludes food and energy, rose by 3.2% year-over-year, down from 3.3% in the previous month. Both figures represent the smallest increases since 2021.

Breaking down the details, the primary contributor to the overall increase was inflation in housing services, which saw a monthly gain of 0.4%, up from 0.2% in the previous month, accounting for 90% of the total monthly increase across all items. However, this gain was offset by declines in several areas, including used cars and healthcare.

Similar to the PPI data released yesterday, the CPI data further confirms that inflationary pressures are continuing to ease. If the initial jobless claims over the next few weeks, as well as the unemployment rate and non-farm payroll data to be released on September 6th, remain stable, and if retail sales maintain moderate growth, the Federal Reserve will have more flexibility in its monetary policy decisions. Currently, the market anticipates a 64% probability of a 25 basis point rate cut at the September FOMC meeting, compared to a 36% probability of a 50 basis point cut.

Read more at Datatrack