Lower than expected inflation fuels case for rate cuts

Today’s top stories

• Ukraine launched what it described as the war’s largest drone attack on Russian airfields as Kyiv’s forces are facing increased resistance nine days into their incursion into Russia.

• Japan’s Prime Minister Fumio Kishida said he would step down as leader of the ruling Liberal Democratic party in September, ending months of speculation over his ability to survive scandal and rising living costs.

• Mars reached agreement to buy Pringles maker Kellanova for $36bn in one of the largest deals of the year. The price is unusual in the consumer sector, especially for a company making products that have fallen out of favour with health conscious customers. 

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Good evening.

Less than expected rises in inflation in the US and UK today have bolstered the cases for interest rate cuts, but the outlook for the Eurozone is less clear.

In the US, the consumer price index fell to 2.9 per cent in July, dropping below 3 per cent for the first time since March 2021. Core CPI, which excludes volatile food and energy prices, rose by 3.2 per cent, compared with 3.3 per cent in June. Separate data yesterday showed producer prices also slowing more than expected in another sign of price pressures easing.  

Fed officials have been waiting for more evidence that inflation was cooling before lowering borrowing costs as Americans show signs of curbing their spending.

The news will be welcomed by the White House and Democratic presidential contender Kamala Harris ahead of the November election. Harris is now more trusted on the economy than her rival Donald Trump, according to the latest FT Michigan Ross poll. (You can read more about inflation and the race for the White House in this analysis by FT commentator Chris Giles.)

Earlier in the day, UK data showed inflation rising back above the Bank of England target of 2 per cent to 2.2 per cent, but by less than expected. Services inflation, the BoE’s key measure of domestic price pressures, also fell more than anticipated to 5.2 per cent, from 5.7 per cent the previous month. Core inflation, which strips out volatile food and energy prices, also slowed to 3.3 per cent from 3.5 per cent.

Today’s data comes after the BoE cut interest rates on August 1 for the first time since the pandemic. Sterling fell on the news as investors upped up their bets on two more rate cuts before the end of the year.

The BoE will also be pleased that the UK jobs market appears to be cooling, after separate data yesterday showed wage growth slowed to the lowest rate in almost two years in the three months to June, though the unemployment rate unexpectedly fell. BoE policymaker Catherine Mann only the day before had warned that wage growth was still a concern and that the UK should not be “seduced” into thinking the battle against inflation was over.

By way of contrast, wages in Germany, the Eurozone’s largest economy, are rising at their fastest pace this century, according to data published yesterday, fuelling disquiet among some economists about next month’s expected rate cut from the European Central Bank. Survey data yesterday, showing investor confidence in Germany and the wider bloc had sunk in August, had fuelled calls for a reduction. Eurozone inflation was higher than expected in July at 2.6 per cent.

See how your country compares with our inflation and interest rates tracker.

Need to know: UK and Europe economy

The NHS launched a “subscription” scheme with pharma companies for antibiotics as the UK tries to encourage the development of new drugs and curb antimicrobial resistance caused by their overuse.

Germany issued an arrest warrant for a Ukrainian man suspected of blowing up the Nord Stream gas pipelines in the Baltic Sea nearly two years ago, one of the most spectacular instances of sabotage in Europe’s recent history.

The political row between Elon Musk and Europe over the power of his social media platform X is growing. EU commissioner Thierry Breton has threatened punishment for X’s role in spreading disinformation, also a factor in the recent UK riots.

Northern Sweden is the new Klondike, where the gold is green electricity. A Big Read explains the attraction for businesses of the country’s extensive hydropower network.

Need to know: Global economy

Tech giants are set to become some of the biggest energy users of the future as they race to develop power-hungry artificial intelligence, threatening their commitments to net zero. A Big Read explains how in the meantime they are trying to reshape how emissions are reported. A huge row is brewing over the removal of a specific mention of fossil fuels in a UN climate pact.

Investors are piling back into bonds as recession replaces inflation as their main concern and fixed income proves its worth as a hedge against stock market turmoil.

Thailand’s constitutional court dismissed Prime Minister Srettha Thavisin from office over a cabinet appointment it said violated ethical standards, throwing the country into fresh political upheaval.

Signs of stability from South Africa’s six-week old unity government — a coalition of the African National Congress and the Democratic Alliance — is boosting business confidence. However Johannesburg, its wealthiest city, remains mired in political chaos.

Gas and grain ships are avoiding the Panama Canal after being forced out by a historic drought last year, highlighting how increasing supply chain disruptions, including those linked to climate change, threaten to reshape and drive up the cost of global trade.

Need to know: Business

Starbucks ditched chief executive Laxman Narasimhan, replacing him with Chipotle’s Brian Niccol, as the world’s largest coffee chain responds to falling sales and activist pressure. The Lex column (for Premium subscribers) says Niccol should beware its backseat barista, ex-CEO Howard Schultz.

Pharma groups and patients say new EU rules threaten to cut the number of new treatments for the rarest diseases because of stricter curbs on medical trials.

Greater economic stability and political certainty are making the UK more attractive for investment and growth, according to insurer Aviva.

AstraZeneca has become the UK’s sole £200bn company, fuelled by its bet on cancer drugs. The drugmaker’s planned £450mn vaccine manufacturing project in Merseyside could fall victim to a cut in state aid.

In an earnings season marked by company warnings over softer consumer spending, gig economy businesses stood out for their resilience, thanks to Americans’ love of convenience, says the Lex column.

The World of Work

About half of all job seekers are estimated to be using artificial intelligence tools such as ChatGPT in their search for roles, inundating employers and recruiters with low-quality applications.

How much ambition is too much? Can we get ahead without annoying our colleagues? And how can women show ambition without drawing unfair criticism? Listen to the new Working It podcast.

Some good news

Disabled people whose walking sticks regularly slide over while they’re paying at the till could soon have their lives improved. The Ida walking stick, designed by a student at Nottingham Trent University, uses magnets to secure it to a person’s hip so they can use both their hands freely in everyday situations.