UK CPI fell within the target range in September, according to data released by the UK Office for National Statistics on October 16. The CPI increased by 1.7% year-over-year in September, down from 2.2% in the previous month and below the market expectation of 1.9%, marking the lowest level since April 2021.

Core CPI, which excludes energy, food, and tobacco, rose by 3.2% year-over-year, a decrease of 0.4 percentage points from the previous month.

The main factor behind the CPI decline was the transportation sector, where prices dropped by 2.2% year-over-year, a 3.5 percentage point reduction from the previous month, contributing -0.3 percentage points to overall CPI growth. This was primarily due to lower airfares and a decline in crude oil prices.

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Moreover, The Bank of England’s closely watched services prices rose by 4.9% year-over-year, down 0.7 percentage points from the previous month, reflecting the continued easing of wage pressures. The latest data shows that regular pay growth in August was 4.9% year-over-year, a decline of 0.2 percentage points from the previous period, marking the lowest level since June 2022.

Earlier, in its August Monetary Policy Report, the Bank of England predicted that as wage pressures ease, services inflation would gradually decline to around 5.3% in 2024.

According to Reuters report, the latest CPI data has further fueled market expectations for a rate cut by the Bank of England. The probability of a two-rate cut by the end of the year has risen from 80% to 90%, and the British pound fell by approximately 0.8 cents against the U.S. dollar on October 16.

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Over the past two weeks, the unexpected rate hike by Japan, coupled with weak U.S. manufacturing PMI and rising unemployment rates, sparked fears of an economic recession in the markets. Meanwhile the strengthening of the yen prompted a significant number of carry trade investors to sell assets to cover margin calls, leading to a sharp decline in global stock markets within a short period.

However, as the U.S. services PMI and jobless claims came in better than expected, along with dovish remarks from the Bank of Japan, global stock markets quickly rebounded. Given the market’s heightened sensitivity to macroeconomic changes, this week’s key economic data need to be closely watched. Below is a preview of the upcoming economic data this week, as well as potential  market outlook regarding these key indicators.

August 14:

• July U.S. CPI: In June, the U.S. CPI increased by 3.0% year-over-year, with the core CPI (excluding food and energy) rising by 3.3%. According to a survey by the Federal Reserve Bank of Philadelphia for the third quarter of 2024, it is expected that as the labor market slows and service inflation decreases, the CPI and core CPI will decline to 2.5% and 2.6%, respectively, by the end of 2024.

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• July U.K. CPI: In June, the U.K. CPI rose by 2% year-over-year, with the CPIH (including owner-occupiers’ housing costs) at 2.8%. Excluding food, energy, and tobacco, the core CPI and CPIH were 3.5% and 4.2%, respectively. According to the August MPC meeting minutes, the Bank of England expects the CPI to rise to around 2.75% by the end of 2024 due to a reduction in the impact of energy prices, before falling back to the target of around 2%.

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August 15:

• China’s July Economic Data: In June, China’s retail sales of consumer goods increased by 2% year-over-year, industrial output rose by 5.3%, and fixed asset investment grew by 3.9%. The market expects that with the summer season and a low base effect, retail sales could rebound to 2.6%. Meanwhile, industrial output is anticipated to increase to 5.4% due to sustained high growth in industrial exports, while fixed asset investment is expected to remain steady at 3.9%.

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• July U.S. Retail Sales: In June, U.S. retail sales increased by 3.0% year-over-year, with monthly growth flat. Core retail sales rose by 0.4% month-over-month, while double core retail sales (excluding autos and gasoline) increased by 0.8%, and control group retail sales rose by 0.9%. Given the slowdown in consumer spending, the market expects a modest monthly growth of 0.3% in July retail sales.

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• Japan’s Q2 Real GDP: In Q1, Japan’s real GDP contracted at an annualized rate of 1.8%, and was revised downward to -2.9% due to declines in consumption and exports. According to a survey by the Japan Center for Economic Research, economists expect Q2 2024 GDP growth to reach an annualized rate of 2.26% driven by a rebound in external demand. The Bank of Japan forecasts full-year 2024 GDP growth of 0.5% to 0.7%.

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(Photo Credit: Federal Reserve)