US inflation slows dramatically, and other economics stories to read this week

Inflation slowed significantly in the US last month, sparking speculation it could end the fastest series of interest rate hikes since the 1980s.

The US consumer price index (CPI) rose by 3% on the year in June, down from 4% a month earlier and marking its smallest rise since March 2021. But it is still above the Federal Reserve's 2% target.

Core CPI excluding food and energy, climbed 4.8% in June – its lowest rate since October 2021. Rents were the biggest contributor to inflation.

Core inflation is expected to continue declining in the coming months, with signs that rents are on a downward trend.

The Federal Reserve will make its next decision on interest rates on 25-26 June. Rates currently stand at 5.00-5.25%, but Fed officials had indicated even before June's CPI figures emerged that the bank was getting close to concluding its run of rate hikes.

Global stocks pushed record highs for 2023 on the possibility of interest rate hikes drawing to a close.

The threat of deflation is building in China, with the country's producer price index (PPI) sliding at its quickest rate in seven years and its CPI unchanged.

The world's second-largest economy saw its PPI drop by 5.4% in June – an acceleration from a 4.6% dip in May and the ninth month in a row it has fallen. The CPI stood still after rising by 0.2% a month earlier.

China's post-COVID recovery has stuttered following a swift acceleration in January-March, and its exports dropped by 12.4% on the year in June because of the stuttering global economy. This could prompt policymakers in Beijing to implement more stimulus measures.

The "challenging deflation environment and sharp slowdown in growth momentum" may push China's central bank to cut interest rates, according to economists at Barclays. Weak credit demand and pressure on the yuan means support will have to come from fiscal policy, according to research firm Capital Economics.

Beijing is targeting consumer price inflation of about 3% this year, after a 2% rise in 2022. More broadly, Beijing has set a 5% growth target for this year as it looks to “prioritize economic stability” following a bumpy 2022, as we reported in May.

Global economic growth edged ahead of projections in the first quarter but has been mixed since then, according to the International Monetary Fund (IMF). It says inflation "seems to have peaked" and that there are "pockets of resilience" in the economy, but still sees most risks being tilted to the downside.

India is set to become the world's second-largest economy by 2075, moving ahead of the US, Japan and Germany, according to Goldman Sachs. India is currently the world’s fifth-largest economy.

The world's public debt hit a record high of $92 trillion in 2022, according to the United Nations. Government borrowing in the face of COVID-19 and other crises has contributed to public debt rising fivefold in the past 20 years, while GDP has only tripled over the same period.

UK government debt is on track to hit 310% of GDP by the 2070s, according to the country's Office for Budget Responsibility. It says this makes the UK “more vulnerable” than other advanced economies in terms of public debt, which recently exceeded 100% of GDP for the first time in 60 years.

Pakistan will receive a $3 billion bailout package from the IMF. The struggling South Asian economy will get $1.2 billion immediately, as part of a nine-month arrangement.

And G20 finance leaders plan to discuss ways of boosting loans to developing nations from multilateral institutions when they meet in India next week.

Steady declines in German inflation came to an end in June, with the CPI increasing by 6.4%, following a 6.1% rise in May. The rise is largely a result of cuts in fuel taxes and reductions in rail fares a year ago to help consumers cope with rising energy prices.

UK wages continued growing at their fastest rate on record in May. Basic earnings climbed 7.3% on the year in the three months to May, the same rate as in April. The fast rises indicate inflationary pressure on the economy, although this was countered to an extent by a slight increase in the unemployment rate, to 4.0% from 3.8%.

Brazilian interest rates could fall from their six-year high of 13.75% when the country's economic decision-makers meet in early August. Inflation has fallen to its lowest in three years.

The global economy faces obstacles, but there are three horizons for growth in the short, medium and long term, writes the World Economic Forum's Mirek Dušek. These include a new generation of entrepreneurship and innovation and the rewiring of international cooperation.

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