Economists Focus On US Inflation Report, RBNZ Delivers Unexpected Rate Cut
The US CPI inflation report due to be released later today draws the attention of investors and traders. However, the day started with the Reserve Bank of New Zealand (RBNZ) cutting its benchmark interest rate by 25 basis points, forcing the New Zealand dollar to lose ground against the US dollar.
In other news, the British pound faced pressure as services inflation figures dropped in June with analysts suggesting that the Bank of England could move forward with more interest rate cuts.
US CPI Inflation Report
Later in the day, the US Department of Labour Statistics will release the July CPI inflation report. The report is expected to play a role in the upcoming Fed rate decision due next month. According to economists’ forecasts, CPI inflation is expected to come in at 2.9%, dropping from 3% recorded in June and coming closer to the Fed’s target of 2%. In addition, on a month-to-month basis, CPI inflation is likely to surge by 0.2%.
Federal Reserve Governor Michelle Bowman said that “the progress in lowering inflation during May and June is a welcome development, but inflation is still uncomfortably above the committee’s 2% goal.” Bowman also said that “I continue to view inflation as somewhat elevated. And with some upside risks to inflation, I still see the need to pay close attention to the price-stability side of our mandate while watching for risks of a material weakening in the labor market.”
RBNZ Cuts Rates Unexpectedly
The RBNZ’s governing council lowered the bank’s Official Cash Rate (OCR) by 25 basis points (bps), surprising market analysts who had expected an “on hold” approach. This was the first time New Zealand’s central bank has reduced borrowing costs in the last four years.
In post-meeting remarks, RBNZ’s Governor Adrian Orr said that the board considered a range of moves but the final consensus was for a 25 bps cut. Orr mentioned that he is confident that inflation is coming back to its target band as well as that the bank can commence re-normalising interest rate levels.
UK CPI Inflation Rises To 2.2%
The UK CPI inflation rose by 2.2% in July, on a year-to-year basis, according to a report by the Office for National Statistics (ONS). The figure was slightly lower than the 2.3% forecast by economists. However, it should be noted that it is above the 2% target set by the Bank of England (BoE). Core CPI inflation dropped to 3.3% from 3.5% recorded in June.
Economists at the ONS noted: “Inflation ticked up a little in July as although domestic energy costs fell, they fell by less than a year ago. This was partially offset by hotel costs, which fell in July after strong growth in June.” The Confederation of British Industry (CBI) mentioned that “inflation undershooting the Bank of England’s expectations will be seen as a positive sign that price pressures are continuing to normalise for households and businesses. Today’s data will give the Bank’s monetary policy committee some measure of confidence that domestic price pressures are less likely to derail a sustainable return to the 2% target.”
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