Starting with China, the release of year on year CPI inflation for the region showed prices deflating, coming in at -0.3%.

Just as you will have heard that, here in the UK, there is little appetite for wage increases from the political sphere, as economists and politicians don’t want to see a wage/price spiral (whereby inflation is high leading to wages increasing meaning people have more money and so their spending power isn’t diminished, this in turn refuels inflation etc.). Well the opposite is true for deflation.

Deflation has its own feedback loop – lower prices mean not only that consumers have more to save (or to use to repay debt), but they also think that if prices are heading down, then they can delay purchases until further into the future when the price is lower, which means there isn’t a high demand for goods, adding further pressure to cut costs and refuel deflation.

China has only just tipped into deflationary territory, rather than it being a deeply embedded issue, and we’ll watch out for any stimulus measures that could encourage spending.

In US news, US CPI increased slightly to 3.2% from 3.0%. Whilst on the face of it, it is a small tick upwards, the release was less than economists expected, and appears to show that the Fed’s interest rate increases are working in gradually bringing inflation down…slowly…gently…without crashing the economy down to earth.

The next Federal Reserve meeting is on 19-20th September, when they will make their next interest rate decision, so there will be plenty more data to analyse before then.

Turning to energy, wholesale energy prices in many regions (including the UK) spiked last week, following concerns that strikes in major Liquified Natural Gas (LNG) facilities in Australia could face disruptions. Whilst nothing is confirmed, labour unions are said to be in talks with LNG facilities.

When thinking of our energy prices here in the UK, it is key to note two things:

• Whilst prices spiked, they still remain much lower than 2022 highs, and
• prices in the UK are subject to an energy price cap.

What this illustrates however, is the importance of Australia’s supply on global energy, despite potential strikes taking part on the other side of the world.

And finishing with the UK, the base rate saw a much anticipated increase by 25 basis points to 5.25%. The Governor of the Bank of England, Andrew Bailey, explained that, though the economy is proving resilient (Q2 gross domestic product data (GDP) revealed that the UK economy grew by 0.2%) interest rates are restrictive, and whilst they may remain restrictive to bring down inflation, using the description of restrictive alludes to the current rates being unsustainable for the medium-long term.

The next CPI inflation reading is due on Wednesday 16th August (which is tomorrow as we record today, although you may be watching this in the future). As a reminder, inflation peaked in October 2022 at 11.1%, and has slowly drifted down (with much encouragement) and the reading for June was 7.9%.

Coming up this week, in addition to UK CPI inflation we have UK retail sales, eurozone CPI and US jobs data.