Hello, and welcome to the Astute Market Overview of the last couple of weeks, a period which has been dominated by inflation.

US CPI revealed that prices increased by 4.0% in May vs a year earlier, tumbling from last year’s 9.1% high. The fall is a continuation of the downward trend, and gives the Federal Reserve enough space to breath. Accordingly they opted to leave interest rates unchanged at their latest interest rate decision.

The trend for falling inflation continued over in the eurozone, with eurozone CPI coming in at 6.1% in May, a drop from April, following an increase in key interest rates by 0.25%.

In both regions, inflation has fallen, however it’s always worth pointing out that prices are still increasing in both regions (and increasing by much more than the 2% targets) but at a lower rate than in the previous month.

And finally in the UK, we have had the release UK CPI inflation for May 2023, coming in at 8.7% which certainly took the wind out of economists’ sails. Don’t worry if you’re feeling a sense of déjà vu: the figure is exactly the same as April’s reading, meaning that prices increased annually in May at the same pace as they did in April. Core CPI (which is inflation excluding energy, food, alcohol and tobacco, used to measure the long-term trend) has increased from 6.8% to 7.1%! This is the highest rate of core inflation in the UK since March 1992. Given that the inflation data were so sticky, the central bank increased the base rate by 0.5%, twice the size of the expected 0.25% increase.

Whilst inflation remains stubbornly high, we still expect inflation to fall significantly during the year. In an open letter to the Chancellor of the Exchequer, the Governor of the Bank of England, Andrew Bailey, explained that the central bank expects CPI to fall to (or just below) 2% in the medium term.

Elsewhere, the People’s Bank of China cut key interest rates, with the one year loan prime rate (LPR) cut down to 3.55% from 3.65% to boost economic growth. With ambitious 5% GDP growth targets for the year, China are supporting their economy following their emergence from strict covid lockdowns, by pulling various monetary policy levers, for example decreasing the rate on their medium-term lending facility.

We’ll be back next time with our overview of the market. See you then.