US inflation drops below 3% and other economy stories to read this week

1. US Inflation Slows to Below 3%

Inflation in the United States continued to cool in July, with annual inflation dropping to 2.9%, its lowest level in nearly three and a half years. The latest figures from the Labor Department indicate that consumer prices rose modestly by 0.2% for the month, marking three consecutive months of stable inflation. This easing trend has raised hopes that the Federal Reserve might cut interest rates in its upcoming policy meeting.

The driving factor behind this modest inflation increase was a 0.4% rise in shelter costs, which continues to put upward pressure on consumer prices. However, the report shows encouraging signs of progress toward the Federal Reserve’s inflation target of 2%, with core inflation remaining stable.

“This report shows continued progress towards the Fed’s inflation goals,” Scott Anderson, Chief Economist at BMO Capital Markets, told Reuters. “Nothing in it would keep the Fed from cutting rates in September, but market hopes for a larger cut still seem like a long shot,” Anderson added.

While the decline in inflation is a positive development, concerns persist over the elevated rent prices and inflation remaining slightly above the 2% target, which may temper expectations of significant rate cuts in the near term.

2. UK is fastest-growing G7 economy in first half of 2024

In a notable development, the United Kingdom has emerged as the fastest-growing economy among G7 nations for the first half of 2024. The Office for National Statistics (ONS) reported that Britain’s Gross Domestic Product (GDP) grew by 0.6% between April and June and 1.3% overall in the first half of the year, following a recession in late 2023.

This impressive growth was largely driven by the services sector, particularly in areas such as scientific research, information technology, and legal services. The figures provide a significant boost for Prime Minister Sir Keir Starmer and Chancellor Rachel Reeves, who have prioritized economic growth ahead of difficult fiscal decisions, including potential tax hikes.

Despite the optimistic figures, experts warn that sustaining this momentum may prove challenging. Growth appeared to stall in June due to a slowdown in services, although the manufacturing sector saw some improvement. With this mixed outlook, it is expected that the Bank of England could hold off on additional rate cuts, depending on future economic conditions.

3. News in Brief: Global Economic Highlights

• China: The world’s second-largest economy showed mixed economic signals in July. Industrial output rose by 5.1% year-on-year, below expectations, while retail sales grew by 2.7%, surpassing forecasts. The slowdown in factory output reflects ongoing challenges in China’s post-pandemic recovery.
• US Interest Payments: Interest payments by the US Federal Reserve have added over $100 billion to the nation’s overall interest bill in the past year, exceeding the combined spending on NASA, FEMA, and the Small Business Administration.
• European Central Bank (ECB): A majority of economists expect the ECB to implement two 25 basis point rate cuts in September and December, bringing the deposit rate to 3.25%. This follows a pattern of global central banks easing rates amid cooling inflation.
• New Zealand: The Reserve Bank of New Zealand made its first rate cut in four years, reducing the benchmark rate by 25 basis points to 5.25%. This dovish move caught markets off guard, leading to a sell-off in the New Zealand dollar and increasing bets on further rate cuts.

• Philippines: The central bank of the Philippines also cut interest rates for the first time in almost four years, bringing the target rate down to 6.25% to support economic growth.
• Ghana: Consumer inflation in Ghana continued its downward trend, slowing to 20.9% year-on-year in July, down from 22.8% in June. This marks the fourth consecutive month of easing inflation in the West African nation.
• Norway: Norway’s central bank held its key deposit rate at 4.5%, signaling no immediate rate cuts due to concerns over the depreciation of the Norwegian krone and its potential impact on inflation.
• Switzerland: Swiss GDP grew by 0.5% in the second quarter, up from 0.3% in the previous quarter, driven by strong performance in the services sector, which offset challenges in exports.

3. More on finance and the economy

Africa has made progress in funding its development through domestic resources, but the financing gap remains significant. Zimbabwe’s Finance Minister, Mthuli Ncube, discussed the need to address climate change and sustainable development to foster a prosperous and inclusive Africa.

Globally, financial inclusion remains a pressing issue, with 1.4 billion people lacking access to essential financial services. Fintech innovations, such as mobile money and microloans, offer promising solutions for economic growth and poverty reduction.

Meanwhile, quantum computing poses a new challenge to traditional cryptography, threatening data security, according to two IBM researchers. While North America and Asia are leading the charge on quantum solutions, Europe lags behind, which could have serious implications for its finance industry.