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

US consumer prices increased slightly in July, with annual inflation slowing to 2.9%, its lowest level in nearly 3.5 years. This raises the likelihood that the Federal Reserve will cut interest rates next month.

The Labor Department's latest report shows three consecutive months of stable consumer prices and a modest rise in producer prices, suggesting inflation is on a downward trend.

"This report shows continued progress towards the Fed's inflation goals," Scott Anderson, a chief economist at BMO Capital Markets, told Reuters.

"Nothing in it would keep the Fed from cutting in September, but market hopes for a bigger cut still seem like a long shot," Anderson added.

Despite the decline, higher rents and persistent inflation above the 2% target mean a significant rate cut in September remains uncertain. The consumer price index rose 0.2% in July, driven mainly by a 0.4% increase in shelter costs.

Britain's economy is set to record the fastest growth among G7 countries for the first half of the year. Gross domestic product (GDP) rose 0.6% from April to June and 1.3% overall in 2024, following a late 2023 recession, the Independent reports.

Growth over the three months was driven by the services sector, particularly in scientific research, IT and legal services, the Office for National Statistics said.

The data, which predates the election, offers a boost to Prime Minister Sir Keir Starmer and Chancellor Rachel Reeves, who have prioritized growth but anticipate tough decisions and potential tax rises ahead.

However, experts warn that maintaining this growth may be difficult, indicating that the Bank of England could delay additional rate cuts. In June, growth stalled due to weak services, though manufacturing improved, and in May, the economy grew by 0.4%.

China's factory output slowed for the third consecutive month in July, indicating a faltering recovery in the world's second-largest economy, Reuters reports. Industrial output grew by 5.1% year-on-year, below expectations, while retail sales surpassed forecasts with an improvement to 2.7% in July, highlighting mixed economic signals and ongoing concerns for policymakers.

Interest payments by the US Federal Reserve have added more than $100 billion to the country's overall interest bill in the past year, according to Bloomberg. This is more than the total spending on NASA, the Federal Emergency Management Agency and Small Business Administration combined.

Over 80% of economists in an 8-13 August Reuters poll predict the European Central Bank will deliver two more 25 basis point rate cuts in September and December, bringing the deposit rate to 3.25%. This is roughly consistent with the global news agency's last two surveys.

New Zealand's central bank has made its first rate cut in four years. The Reserve Bank of New Zealand reduced its benchmark rate by 25 basis points to 5.25% and signalled further cuts ahead as inflation nears its 1-3% target. This dovish shift surprised markets, leading to a sell-off in the Kiwi dollar and bets on further easing through 2025.

The Philippines also cut interest rates for the first time in nearly four years, lowering the target rate by 25 basis points to 6.25% to sustain economic growth. The Bangko Sentral ng Pilipinas suggested that further cuts are likely, with inflation tilting to the downside.

Consumer inflation in Ghana slowed for the fourth straight month in July, easing to 20.9% year-on-year from 22.8% in June, according to the country's statistics service.

Norway’s central bank held its key deposit rate at 4.5% for the eighth month, a move predicted by all economists in a recent Bloomberg poll. Norges Bank did not indicate when rate cuts might start, highlighting its concern over the depreciating krone and its impact on inflation.

Swiss GDP grew 0.5% in the second quarter, up from 0.3% in the Q1, as strong service output offset export challenges, according to the country's State Secretariat for Economic Affairs.

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