Charting the global economy: Inflation cools in US and UK


— Reuters

Measures of inflation eased in the United States and Britain last month, propping up bond prices after deep selloffs and bolstering bets on interest-rate cuts.

In the United States, the core consumer price index – which strips out food and energy costs – stepped down for the first time in six months, restrained by cheaper hotel stays, a smaller advance in medical care services and relatively tame rent increases.

British inflation unexpectedly cooled for the first time in three months thanks to softer travel costs.

Meanwhile, China’s economy – unadjusted for price changes – clocked in last year at the second-slowest pace since it started shifting to a market economy in the late 1970s.

While real growth reached 5%, the economy grew just 4.2% when adjusted for deflation.

United States

Consumer prices rose in December by less than forecast, a welcome step down that helped arrest a deep selloff in bond markets and reinvigorate bets that the US Federal Reserve (Fed) will cut interest rates sooner than previously thought.

When Fed officials gather in two weeks they’re likely to ponder a puzzling trend in markets: Since September, as they lowered short-term interest rates by a full percentage point, longer-term government bond yields moved by a roughly equal amount – but in the opposite direction.

To some on Wall Street, the mismatch is evidence the US central bank misread the economy and went too far with rate cuts.

The very richest Americans are among the biggest winners from President Joe Biden’s time in office, despite his farewell address warning of an “oligarchy” and a “tech industrial complex” that threaten US democracy.

Europe

British inflation unexpectedly cooled for the first time in three months in December, prompting traders to increase bets on Bank of England interest-rate cuts this year.

Germany’s economy shrank for a second consecutive year in 2024 and is unlikely to grow much in 2025, laying bare the challenge for the country’s new government once snap elections are held in February. Gross domestic product (GDP) fell by 0.2% after dropping 0.3% in 2023.

British retail sales posted a surprise fall around last month’s crucial Christmas period in a fresh setback for the Labour government’s hopes of reviving economic growth.

Despite growing real incomes, households are in cautious mood amid warnings of an inflation resurgence and expectations of slower declines in borrowing costs.

Asia

President Xi Jinping’s government reached last year’s 5% growth target, a well-telegraphed victory that came as little surprise. The snapshot from the National Bureau of Statistics showed China’s two-track economy continued to be powered by trade while consumer spending remained muted.

However, nominal GDP growth – unadjusted for price changes – slowed to 4.2% in 2024, the second-weakest pace since China began transitioning to a market economy in the late 1970s.

China’s trade surplus soared to a record last year, driven by strong exports that boosted the economy but may soon be threatened by the incoming Trump administration.

Strong demand from overseas has helped provide growth for a domestic economy weighed down by a years-long housing crisis. Exports accounted for nearly a quarter of growth in 2024.

World

The International Monetary Fund upgraded its global growth forecast for this year, spurred by stronger-than-expected US demand and slowing inflation worldwide that will let central banks continue to cut interest rates.

Indonesia unexpectedly lowered interest rates, while Romania kept borrowing costs unchanged.

The Bank of Korea held rates steady as it monitors the currency and political turmoil, while Poland and Kazakhstan stood pat.

China’s quest to feed itself has taken it as far as Kenya’s macadamia nut groves and Bolivia’s cattle ranches, as part of a push in recent years to diversify food sources away from traditional Western suppliers.

The market-share loss for US-allied nations is a win for countries from the Global South, which Beijing has sought to court as geopolitics increasingly cleaves the world into distinct blocs. — Bloomberg

Vince Golle and Molly Smith write for Bloomberg. The views expressed here are the writers’ own.

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inflation , CPI , interest rate

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