What to Watch in July's CPI Report; Interest-Rate Increases Are Weighing on World Trade; India Stands Pat

What to Watch in July's CPI Report; Interest-Rate Increases Are Weighing on World Trade; India Stands Pat By Perry Cleveland-Peck

Good day. Economists estimate that the annual U.S. inflation rate ticked up in July from June but monthly price increases remained modest, which could possibly deter the Federal Reserve from raising interest rates in September. Fed officials have lifted interest rates to a 22-year high to lower inflation by cooling the economy. They are watching inflation and other economic readings as they weigh whether to raise rates again when they meet mid-September. Those include the Labor Department's report on its consumer-price index, one of the most widely followed measures of goods and services prices across the economy, which is released today at 8:30 a.m. Eastern time. Meanwhile, global trade is weakening, largely reflecting drooping demand for goods. Consumers who spent heavily on goods during and after the pandemic are now spending more on services, which tend to be locally produced. Central banks have played a role in trade's weakening, by raising interest rates in the U.S., Europe and other economies. Bucking the trend, however, this morning is India, whose central bank kept its policy rate unchanged, saying inflation in the country has slowed.

Now on to today's news and analysis.

Top News Why an Uptick in Annual Inflation Might Not Worry the Fed

Economists surveyed by The Wall Street Journal estimate that the CPI rose 0.2% in July from the prior month, the same as in June and a sign that price pressures held steady. That would mean the 12-month inflation rate climbed to roughly 3.3% in July, according to forecasts, up from June's 3%, which was the slowest pace in more than two years. The increase will likely have much to do with what happened during June and July of 2022, which serve as the basis for comparison, economists said.

The economists estimate that so-called core prices, which exclude volatile food and energy categories, rose by 0.2% in July from June and 4.8% from a year earlier-the same as in June. Fed officials focus on core inflation because they see it as a better predictor of future inflation than the overall inflation rate.

Sputtering Trade Fuels Fears of a Fractured Global Economy

The downturn in world trade , exemplified by slumping Chinese exports and a decline in U.S. imports, mainly reflects a phase of weak global economic growth.

It also raises questions about whether deeper changes are under way, with decades of deepening global economic integration giving way to a new era in which the West and China do more business with their political friends and less with each other.

U.S. Economy Colleges Spend Like There's No Tomorrow

The nation's best-known public universities have been on an unfettered spending spree . Over the past two decades, they erected new buildings and poured money into sports programs. Then they passed the bill along to students.

Social Security Benefits Will Go Up Next Year, but Not by a Lot

Social Security recipients are on track to pocket a significantly smaller raise in 2024 because of a slowdown in inflation. Monthly checks are expected to increase about 3% in 2024, according to analysts.

Key Developments Around the World China Relies on U.S., Allies for Hundreds of Products

China has at least a 70% dependence on the U.S. and its allies for more than 400 items, ranging from luxury goods to raw materials needed for Chinese industries, a new analysis of trade data has found.

U.S. and China Poised to Drift Further Apart After Investment Ban In China, IPO Lawyers Told to Watch Their Language Saudi Arabia's Sovereign-Wealth Fund Bets Big at Home

Saudi Arabia's sovereign-wealth fund made a global splash with investments in SoftBank's Vision Fund, Newcastle United soccer club and professional U.S. golf. Its next big bet? Camel dairy farming at home .

India Central Bank Keeps Rate Unchanged as Inflation Slows

India's central bank kept its policy rate unchanged as inflation slowed. Reserve Bank of India Gov. Shaktikanta Das said the monetary-policy committee decided unanimously to maintain its policy repo rate at 6.50%.

Financial Regulation Roundup Some Banks Struggle to Report Uninsured Deposits Correctly

It seems like an easy question for a bank to answer: How much of its deposits are covered by federal deposit insurance and how much are uninsured? Turns out this is hard stuff for some banks. A case in point: Provident Bank.

Italy Treads Fine Line as It Tries to Introduce Windfall Bank Tax

Italy's government is navigating a narrow path as it tries to impose a special tax on profits banks have reaped since interest rates began rising last year without spooking markets and discouraging foreign investments.

Forward Guidance Thursday (all times ET)

8:30 a.m.: U.S. consumer-price index for July; U.S. weekly jobless claims

3 p.m.: Prerecorded remarks by Atlanta Fed's Bostic to 'Connecting Communities: Shifting Perspectives and Expectations on Employment' webinar

Friday

2 a.m.: United Kingdom gross domestic product for first quarter (first estimate) and June (monthly estimate)

8:30 a.m.: U.S. producer-price index for July

10 a.m.: University of Michigan consumer survey, preliminary for August

4:15 p.m.: Fed reports on assets and liabilities of commercial banks in U.S.

Research Europeans Fear Inflation Is Here to Stay

Europeans expect inflation to continue to hit their wallets in the years ahead, according to a survey by Dutch bank ING. A majority of survey respondents are spending more of their income on food, transportation and energy bills than they were five years ago, and most expect this to remain the case in five years' time, according to the survey of consumers across countries inside and outside of the eurozone, including Spain, Romania, Poland and Turkey. This despite recently easing inflation in the eurozone, with economists forecasting even sharper falls ahead, ING says. "These perceptions are concerning as far as they relate to future spending," the bank's economists say.

-Joshua Kirby

U.K. Faces Five Years of Lost Economic Growth

The U.K. is in store for five years of lost economic growth with gross domestic product unlikely to top its prepandemic level until the third quarter of 2024, according to a report by the National Institute of Economic and Social Research. GDP looks set to rise by just 0.4% this year and 0.3% in 2024, with the outlook highly uncertain, the report says, noting, "There are, in fact, even chances GDP will contract by the end of 2023 and a roughly 60% risk of recession at the end of 2024." The report adds that inflation should fall to 3.9% by the end of 2024. "Nevertheless, with core inflation at 6.9% and other underlying inflation measures remaining high, we see significant risks to our inflation forecast," the report says.

-Philip Waller

Commentary Why Fitch's Downgrade Matters

Bond yields rose after Fitch Ratings stripped the U.S. of its triple-A credit rating, suggesting the action deserves attention because it joins a stack of evidence of how profoundly risky the nation's fiscal situation is now, Greg Ip writes.

Basis Points U.S. mortgage rates are up across the board, with the 30-year mortgage backed by the Federal Housing Authority surging to the highest level since 2002, partly due to a downgrade to the U.S. government's debt. The 30-year averaged 7.09% at the start of August, and FHA-backed loans averaged 7.02%, which altogether pushed overall mortgage applications down for the third month in a row. (MarketWatch) Canadian building permits climbed in June on intentions to build hospitals and other industrial complexes. The total value of permits in June rose 6.1% from May to a seasonally adjusted 11.60 billion Canadian dollars, the equivalent of $7.45 billion, Statistics Canada said Wednesday. On a year-over-year basis, the overall value of permits issued in June dropped 4.2%. (Dow Jones Newswires) Mexico's inflation slowed in July with further declines in energy costs tempered by increases in some services and fresh produce prices. The consumer-price index rose 0.48% last month from June and 4.79% from a year earlier, the National Statistics Institute said. Core CPI, which excludes energy and agricultural product prices, rose 0.39% in July, bringing the 12-month rate down to 6.64% from 6.88% in June. (DJN) Kenya's central bank on Wednesday retained its key interest rate at 10.50% to tame inflation pressures, and the country's Monetary Policy Committee said inflation, at 7.3%, is within target range and anticipated to decline further as food inflation is expected to come down. (DJN) The Democratic Republic of Congo's central bank more than doubled its benchmark lending rate to 25% from 11% as spiralling inflation and a weakening local currency pressure Africa's top copper and cobalt producer. (DJN) Feedback Loop

This newsletter is compiled by Perry Cleveland-Peck in Barcelona and James Christie in San Francisco.

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08-10-23 0715ET