Take Two: US inflation slows; China reports record trade surplus

What do you need to know?

The US’s annual inflation rate fell to 8.5% in July, from 9.1% in June, giving investors hope that the Federal Reserve may be able to slow its pace of interest rate hikes. However, while gas prices fell 7.7% in July, food and housing costs continued to increase. A tight labour market has also continued to drive up wages, a separate report showed. Meanwhile, the Senate passed a new $369bn bill to help curb inflation while President Joe Biden also signed into law a $280bn funding package for high-tech manufacturing and development, to help the US compete with China.

Around the world 

China exports jumped 18% in July from a year earlier, driving its trade surplus above the $100bn mark for the first time. It was the fastest increase this year – analysts had expected a slowing from 17.9% in June – while imports rose 2.3%, as domestic demand remains weak. In July 2021, the trade surplus stood at $56.6bn. Export growth likely reflected the lifting of COVID-19 restrictions at key trade hubs such as Shanghai. Separately, official data showed China’s Consumer Price Index reached a two-year high in July, up 2.7% year on year, while pork prices showed their fastest ever month-on-month gain, up 25.6%.

Figure in focus: 8.6%

The United Nations' Food Price Index fell 8.6% in July, its steepest monthly decline since 2008, reflecting the resumption of Ukrainian grain exports, seasonal availabilities and weak demand from China. Vegetable oil prices dropped 19.2%, reaching a 10-month low. However, the index was still 13.1% above its level in July last year, as the Ukraine war continues to pressure supply while major food producers face lower crop yields amid heatwaves. According to the European Drought Observatory, 63% of land in the European Union and UK is currently under drought warnings or alerts.

Words of wisdom:

Transmission Protection Instrument: A tool launched by the European Central Bank (ECB) in July, to ensure monetary policy is transmitted smoothly across the Eurozone – levelling out borrowing costs in markets where government bond yields have spiked. The Transmission Protection Instrument (TPI) aims to prevent “unwarranted, disorderly market dynamics” by allowing the ECB to buy debt in the secondary markets in Eurozone countries where financing conditions are deteriorating, preventing significant divergence across the bloc.

What's coming up?

The week begins with a preliminary estimate for Japan’s second quarter economic growth rate – it contracted by 0.1% on a quarterly basis in the first three months of the year. On Tuesday the Reserve Bank of Australia publishes the minutes from its August monetary policy meeting while the latest UK unemployment data is also announced. The UK follows up with its July inflation rate on Wednesday, when employment numbers for the Eurozone, alongside a second estimate for the bloc’s Q2 economic growth rate, are reported. Wednesday also sees the minutes from the latest Federal Reserve meeting published. Inflation numbers for the Eurozone and Japan respectively arrive on Thursday and Friday.