SPI Management Newsletter 16.09.2022
UK inflation lower than expected, US rises unexpectedly.
Falling fuel prices caused the UK's consumer price index (CPI) to fall unexpectedly last month, according to official data released on September 14. The annual rate of consumer price inflation fell to 9.9% in August from 10.1% in July, below economists' expectations.
The UK is still suffering from the highest inflation among major advanced economies and financial markets expect the Bank of England to raise interest rates further next week after delaying a rate decision this week after the death of Queen Elizabeth II.
The British pound dropped below $1.14 for the first time since 1985 as a combination of dollar strength and recession warnings weighed on the U.K.’s currency. European equities also retreated.
On the other side of the ocean, contrary to expectations, U.S. consumer prices rose in August, accelerating underlying inflation amid rising rent and health care costs. The consumer price index rose 0.1% last month reaching a 8.3% inflation rate on an annual basis. While gas prices fell by 10.6%, which provided some relief, consumers had to pay more for groceries, rent, healthcare, electricity and natural gas.
US stock market retreated, with the Dow losing 1,200 points on Tuesday, in its worst decline in two years.
China's consumer, producer inflation slows in August as COVID impacts demand
China's consumer prices rose at a slower-than-expected pace in August while the rate of producer inflation hit an 18-month low, reflecting an economy plagued by weak domestic demand and leaving room for further central bank policy easing.
The world's second largest economy lost further momentum in August as weakening housing market, COVID-19 containment measures and electricity shortages hit consumption and factory activity, according to official and private data.
To revive the economy, the central government proposed another stimulus package, increasing the allocation of policy financing instruments by 300 billion yuan ($43.37 billion) as well as cutting interest rates.
2023 Global Recession: is it guaranteed?
As central banks around the world simultaneously raise interest rates in response to inflation, the world is headed for a global recession in 2023, sparking a series of financial crises in emerging and developing economies that will lead to permanent economic downturns according to a new report by the World Bank.
The study highlights the unusually tough situation in which central banks are currently battling inflation. Some historical indicators of a global recession are already flashing warning signs. Global consumer confidence has fallen much sharper than before the previous global recession. The world's three largest economies, the United States, China and the eurozone, are slowing sharply. Under these circumstances, even a modest blow to the global economy next year could plunge us into recession.
On the other hand, J.P. Morgan reports a slew of recent data from major economies suggesting inflation and wage pressures are set to ease and consumer confidence to stabilize.
"The probability for soft landing has ticked up with moderating inflation and jobs prints, while at the same time, positioning remains at extreme lows," J.P. Morgan added.
Adapted from WEF, CNBC, World Bank, J.P. Morgan