“Eurozone Inflation for July…”

Eurozone inflation reached a new record high of 8.9% year-on-year in July, with the core measure that excludes the most volatile components also edging sharply, said the EU statistics office (Eurostat).   Eurostat also said consumer prices in the 19 countries using the euro increased by 0.1% month-on-month in July.  This is the highest increase since the euro was created in 1999.  According to Eurostat, out of the total, 4.02% came from more expensive energy amid Russia’s invasion of Ukraine while 2.08% from more expensive food alcohol and tobacco.  However, irrespective of these components being removed, prices still increased by 5.1% year-on-year higher in July.  Furthermore, services prices that created more than two thirds of the eurozone’s GDP climbed by 3.7% year-on-year in July.  Industrial goods were also 4.5% more expensive than a year before adding 1.16% to the final figure. 

Eurozone Economic Growth

Data from Eurostat shows that gross domestic product in the 19 countries using the euro increased by 0.6% quarter-on-quarter in the April-June period, for a 3.9% year-on-year increase. This is lower than what the office had previously estimated with quarterly growth at 0.7% and the year-on-year rise of 4%.  This shows that the eurozone growth was slightly less robust in the second quarter however, still strong.  Such growth was mainly attributable to the strong performance by Italy and Spain which grew 1% and 1.1% quarter-on-quarter despite the stagnation in the German economy.  Concurrently, Eurostat also said that eurozone employment increased by 0.3% quarter-on-quarter for a 2.4% year-on -year increase.  Economists are forecasting a mild recession in the next 12 months amid higher inflation and supply chain problems.  Economies in Europe are feeling the brunt of the war in Ukraine and the impact it is having on consumer and business confidence.  Furthermore, the reduction of Russian gas supplies could lead the eurozone into a deeper recession. 

British Inflation

Inflation in the UK climbed to 10.1% in July, its highest since February 1982, and higher from an annual rate of 9.4% in June showed official data on Wednesday.   The figures from the National Statistics Office showed that prices rose 0.6% in July from June on a non-seasonally adjusted basis, while the annual rate of retail price inflation hit 12.3%, the highest since March 1981.  Increasingly energy prices in Europe in the wake of the war in Ukraine, are contributing to higher inflation and according to the BOE, are likely to lead the UK into a lengthy and shallow recession.  Data also indicated that future inflationary pressures are starting to abate.  Although factory prices increased by the most since August 1977, increasing by 17.1%, the increase in prices paid by factories has slightly cooled down, dropping to an annual 22.6% from June’s record of 24.1%.  On a month-on-month basis, input prices only increased by 0.1%, the slowest increase for this year amid weaker global demand for steel, lower oil prices and slower economic growth.

German Investor Sentiment

German investor sentiment slightly dropped in August amid concerns about the increasingly cost of living that has been affecting private consumption suggesting that the economy is close to a recession. According to the ZEW economic research institute on Tuesday its economic sentiment index dropped from -53.8 in July to -55.3 points.   The German economy has stagnated in the second quarter of the year amid the pandemic, supply chain disruptions, high energy costs and the war in Ukraine.  Nonetheless, Finance Minister, Christian Lindner commented that the economic situation was deteriorating in Germany and the outlook is fragile. 

UK Labour Market

Official data on Tuesday shows that the UK labour market showed signs of cooling as businesses have become more cautious about hiring and workers had to bear a drop in their salaries when factoring in inflation.  The unemployment rate of 3.8% in the three months to June was unchanged from last month’s report even though the Bank of England warned that the economy is likely to head into a recession later this year.  The number of employed people increased by 160,000 in the April-June period compared with the first quarter.  Meanwhile the number of unemployed people has slightly increased as people returned to the labour market to look for jobs.

China Cuts Key Rates Unexpectedly

In a surprise move on Monday, China’s central bank cut the key lending rates to boost demand as data showed the economy slowed in July amid the zero-COVID policy and a property crisis that impacted factory and retail activity.  Industrial output grew by 3.8% in July from a year earlier, according to the National Bureau of Statistics (NBS) which is below the 3.9% expansion in June.  Retail sales climbed 2.7% from a year ago missing the 5% growth and the 3.1% growth seen in June.  In the second quarter of this year China narrowly missed a contraction impacted by the lockdown in the commercial hub of Shanghai and the downturn in the property market.  Consumer spending was also soft. Nonetheless in July lockdown measures were imposed on the back of fresh outbreaks of the more transmissible Omicron variant.  Furthermore, the property sector has been badly impacted dropping 12.3% last month and concurrently, the drop in new sales deepened to 28.9%. 

Oil

Oil prices settled lower on Monday following the disappointing news about China’s economic data that increased the concerns about a global recession and the possibility of a reduction in fuel demand.  Brent crude futures settled lower by 3.1% to $95.10 after dropping 1.5% on Friday while US West Texas Intermediate crude settled down by 2.9% at 89.41 after dropping 2.4% in the previous session.  Brent futures were close to their lowest since before the attacks of Russia on Ukraine on 24 February while WTI futures touched their lowest on Monday since the beginning of February.  Oil is usually priced in US dollars and a stronger currency makes the commodity more expensive to holder of other currencies.  Thursday saw oil prices rising on robust US fuel consumption data and the expected falls in Russian supply later in the year that offset fears of a recession that could cut down demand.  Brent crude futures climbed 1.4% to $94.98 a barrel while US crude futures gained 99 cents to $89.10 a barrel. 

Gold

Gold prices fell by more than 1 on Monday as the dollar climbed to a one-week high amid weak data about the global economy that raised fears of a recession. Meanwhile, rising US interest rates and a slowing economy could lead to a decline in the demand for gold.  The benchmark US 10-year Treasury yield dropped for a third session to 2.7788% lowering the opportunity cost of holding gold as the latter does not pay interest.  Concurrently, on Tuesday gold prices steadied as the dip in US bond yields offset some of the pressure from a stronger dollar and the concerns over more interest rate hikes by the FED. On Thursday gold prices dropped by 0.2% to $1,758.42 per ounce after dropping to $1,759.17 on Wednesday while US gold futures settled by 0.3% to $1,771.2 per ounce. Investors had the minutes of the FED July meeting to digest where released on Wednesday.  The minutes showed that more rate hikes were in the pipeline however indicated that FED officials have started to acknowledge the risk that it might go too far and impact economic activity.    

Malta:  Harmonised Index of Consumer Prices (HICP) – July 2022

The annual rate of inflation in July, as measured by the HICP stood at 6.8%, higher than the 6.1% in June 2022.  The HICP measures monthly price changes in the cost of purchasing a representative basket of consumer goods and services.  The HICP is based on EU regulations that were prepared by Eurostat together with the EU Member States. The HICP is used to compare inflation rates across the EU.   The largest contributor to the annual inflation was measured in the Food and non-alcoholic beverages Index (+2%).

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