“US Consumer Price Growth…”

US consumer prices remained unchanged in July amid a sharp drop in the cost of gasoline.  In a closely watched report, the Labour Department said that the Consumer Price Index (CPI) did not rise after rising by 1.3% in June.  However, the report still showed that underlying inflationary pressures remained high as the FED is considering whether to further hike interest rates in September.  Economists polled by Reuters have forecast an 0.2% increase in the monthly CPI in July on the back of a roughly 20% drop in the cost of gasoline.  In the 12 months through July, the CPI increased by a weaker-than expected 8.5% following a 9.1% increase in June. Underlying inflationary pressures, that exclude volatile food and energy components also showed some encouraging signs.  The Core CPI rose by 0.3% in July after climbing by 0.7% in June, while in the 12 months through July increased by 5.9% at the same pace in June.  Meanwhile traders have slashed back the bets that the FED will deliver a 75-basis point interest rate increase after Wednesday’s release of US inflation data and instead are expecting the FED to raise rates by 50 basis points next month.

US Senate approves Bill

On Sunday the US Senate passed a sweeping $430 billion bill with the aim to fight climate change, lower drug prices and increase some corporate taxes.  This is an important event for President Joe Biden as Democrats are hoping it will help them to increase the chances of keeping control of Congress in this year’s elections.  The Senate approved the legislation which is known as the Inflation Reduction Act by a 51-50 vote.  This will send the measure to the House of Representatives for a likely vote on Friday which they are expected to pass it, and which would then send the bill to the White House for Biden’s signature.  The aim of the legislation is to reduce carbon emissions and shift consumers to green energy, whilst cutting prescription drug costs for the elderly and tightening enforcement on taxes for corporations and the wealthy.  In view that the measure pays for itself and reduces the fed deficit over time, democrats are of the view that it will reduce inflation. However, Republicans have argued that it will not reduce inflation describing the measure as job-killing, left-wing spending wish list that could undermine growth should the economy fall into recession. 

German Economy

Germany’s economy will be losing more than EUR 260 billion in added value by 2030 amid the war in Ukraine and high energy prices which could have repercussions on the labour market, according to a study by the Institute for Employment Research (IAB).  The study further showed that Germany’s price adjusted gross domestic product (GDP) will be lower by 1.7% next year with 240,000 less people in employment.  Employment is expected to remain at this level until 2026, while the expansive measures will slowly start to overcome the negative effects leading to a positive 60,000 gainfully employed in 2030.  The hospitality sector which has already been impacted by the COVID-19 pandemic is likely to be the most impacted by the declining consumer purchasing power.  Other sectors likely to be impacted are the energy-intensive sectors such as chemical and metal production.    

Gold

Gold moved higher on Monday as the dollar and the Treasury yields retreated.  Meanwhile, focus during the week was on US inflation numbers that could influence the FED’s next interest rate hike. Traders were expecting a 70% chance of the FED raising interest rates by 75 basis points in the next policy decision in September.   Spot gold rose 0.5% to $1,782.36 per ounce after dropping 1% in the previous session.  US gold futures also climbed by 0.4% higher to $1,798.40.  Prices were little changed on Wednesday amid cautions about US inflation data that was to be released later in the day.  Spot gold moved lower to $1,790.50 per ounce however traded in a relatively narrow range of $8.36 range.  Meanwhile, US gold futures dropped 0.4% to $1,805.10. On Tuesday gold hit its highest since 5 July at $1,800.29.  Despite gold is considered a hedge against inflation, the risks of recession together with political uncertainties and higher US interest rates lower gold’s appeal.  Thursday saw gold prices retreating from their highest levels in more than one month amid comments from the US Federal Reserve officials that further interest rate hikes may be needed despite the indications that inflation is easing.  Gold is highly sensitive to US rate hikes as it increases the opportunity cost of holding the commodity.  Spot gold dropped 0.3% to $1,786.79 per ounce after hitting its highest since 5 July at $1,807.79 on Wednesday.  Limiting gold’s losses was the dollar that was down 0.1% against its rivals after dropping to a 1 ½ month low in the previous session. 

Oil

Oil prices settled slightly lower on Tuesday after worries that a slowing economy could lower demand amid news that some oil exports had been suspended due to the Russia-to Europe Druzhba pipeline that transits Ukraine.  Crude prices have suffered some pressure for weeks on fears that a recession would negatively impact demand for oil.  Brent crude settled at $96.31 a barrel or 0.4% while US West Texas Intermediate (TWI) crude settled at $90.50 a barrel or 0.3%.  Ukraine stopped oil flows on the Druzhba oil pipeline to parts of Central Europe as Western sanctions prevented a payment from Moscow for transit fees to take effect.  On a different note, oil refiners and pipeline operators expect energy consumption to be strong for the second half of 2022 despite general sentiment that demand will drop on the back of a recession.  Meanwhile on Wednesday, oil prices rose recovering from the losses of the earlier session and the encouraging figures related to US gasoline demand and the lower-than-expected US inflation data that triggered investors to move into riskier assets.   Thursday saw Brent crude futures gaining 2.3% to settle at $99.6 a barrel while US West Texas Intermediate crude futures settled higher by 2.6% to $94.34 after the International Energy Agency raised its oil demand growth forecast for this year as consumers are switching to oil amid high natural gas prices.  Nonetheless, OPEC has cut its 2022 forecast for global growth demand for oil by 260,000 bpd from the previous forecast, citing the impact of the war in Ukraine, measures to contain the pandemic and high inflation.  The US dollar has been a contributing factor to the increase in prices as it extended losses against other major currencies after the release of data about US inflation. 

US Producer Prices

July saw US producer prices unexpectedly dropping as the cost of energy products and the underlying producer inflation seem to be on a declining trend and jobless claims increased for the second straight week in the labour market that remains tight.  The producer price index (PPI) for final demand declined by 0.5% last month while in June, it climbed 1%, declared the Labour Department on Thursday.  There was a drop of 1.8% in goods prices after a gain of 2.3% in June. The contributing factor for the 80% of that decline was a 16.7% drop in gasoline prices.  Furthermore, there was a decline in diesel fuel, liquefied petroleum gas and residential natural gas.  Concurrently, food prices edged higher by 1% after declining by 0.2% in the prior month, while the cost of services climbed higher by 0.1% after rising by 0.3% in June.    

Malta:  International Trade in Goods

A press release from the National Statistics Office dated 9 August 2022 shows that provisional figures for registered trade in goods in Malta recorded a deficit of EUR 492 during June 2022 in comparison to the deficit of EUR 274.7 million of June 2021.  While imports amounted to EUR 796.1 million, exports totalled EUR 304.1 million, representing an increase of EUR 233.9 million and EUR 16.6 million respectively over the same period of the year before. The increase in the value of imports arose from mineral fuels, lubricants, and related materials while on the exports side the increases were registered in mineral fuels, lubricants, and related materials.  Meanwhile, during the first six months of the year, the total trade in goods deficit widened by EUR 619.1 million in comparison to the that of 2021, reaching EUR 1,913.4 million.  Imports and exports increased by EUR 909 million and EUR 290 million respectively reaching EUR 3,914.7 million and EUR 2001.4 million.  Higher imports were recorded in mineral fuels, lubricants and related materials, machinery and transport equipment, food and semi-manufactured goods and chemicals.  Concurrently, on the exports side, the increases were registered in mineral fuels, lubricants and related materials, machinery and transport equipment, food, and semi-manufactured goods.  While imports where mainly imported from the European Union (EU) (54.3%) and Asia (18.7%), exports were mostly directed to the European Union (35.6%) and Asia (15%).  Italy (EUR 182.9 million) and the Netherlands (EUR 20.7 million) reported an increase and decrease in imports respectively. The main increase in exports was recorded in the UK (EUR 66.9 million) while Italy reported the lowest decrease (EUR 41.5 million).     

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