Let’s start our week with another review of the state of play.
Recent data suggests that the US economy is accelerating, with early gross domestic product estimates indicating that the economy is revving rather than slowing down. The latest Consumer Price Index (CPI) data suggests that inflationary pressures in the US are easing, yet the numbers remain above the Federal Reserve’s desired 2% threshold. The CPI rose 3.2% year-over-year in July, with shelter costs accounting for more than 90% of the monthly inflation. The core CPI, excluding volatile components like food and energy, rose by 0.2% over the month, translating to an annual rate of 4.7%. The data offers mixed sentiments for economic analysts and policymakers, with some predicting that the Federal Reserve will stop raising the interest rate soon.
The Adobe Digital Price Index (DPI) has shown a decline in online prices for 11 consecutive months, with most categories experiencing YoY price reductions. Small business owners, especially those with online storefronts, should pay attention to this trend as it can impact market positioning and inventory decisions. The report offers a key takeaway: adaptability and staying informed about market trends in the dynamic e-commerce landscape.
A new paper from Cleveland Fed economists suggests that the ultra-tight labor market that helped define the COVID-19 recovery may not explain soaring wage growth after all. Instead, the economists conclude that rapid wage growth in recent years is “largely due to the pass-through of higher inflation since the pandemic,” which reflects higher compensation for a higher cost of living.
Across the pond, the UK is struggling with stubborn inflation, with the headline annual inflation rate at 6.8% in July and the core measure, excluding energy and food, at 6.9%. The service sector inflation rose by 7.4% in the year through July, and the U.K. wages grew 7.8% in the second quarter compared to the same period a year ago.
And while thinking broadly, The Washington Post warns that bad economic news coming out of China should be watched closely, as a downturn there could have unpredictable global effects and shape Beijing’s foreign policy decisions. Poor retail sales, the housing market, industrial output, and investment, cutting rates, hiding some jobless numbers, and reduced growth forecasts are all concerning signs. The risk for the global economy is that a prolonged spell of weak demand in China could hold back growth elsewhere by blunting exports of iron ore, crude oil, factory equipment, and luxury goods.
Why do we care?
Listeners in the UK will be experiencing a different market than the US, and I wanted to acknowledge that with the data. That said, China will impact both markets. The differing inflation matters, particularly considering the link of inflation to the labor market. It doesn’t change the execution of labor plans, but understanding why helps.
I wanted to note the Digital Price Index trend, which is notable for those serving SMBs—data to advise customers.