Aurelia Butler

BERLIN (Reuters) -German inflation fell in July, resuming the decline since the start of the year that was interrupted the previous month due to the base effects in June’s data. German consumer prices, harmonised to compare with other European Union countries, rose by 6.5% on the year in July, preliminary data from the federal statistics office showed on Friday. This follows a 6.8% increase in June. Analysts had forecast a harmonised annual inflation rate of 6.6% in July when polled by Reuters. Although inflation fell in July, economists called the pace of decline sluggish mainly due to the comparison with last year. Measures introduced in 2022, such as the temporary introduction of the 9-euro ($9.91) public transport ticket, a fuel discount in June, and the abolition of a tax on energy consumption to finance renewables in July, depressed prices last summer. “From September onward, the recent somewhat sluggish retreat of inflation will probably accelerate again,” Commerzbank (ETR:CBKG)’s senior economist Ralph Solveen said, as the year-ago comparison normalises.”However, inflation has not yet been defeated,” he said. By comparison, inflation fell to 5.0% in France and it rose to 2.1% in Spain. Italian and euro zone inflation data is due on Monday. Economists polled by Reuters expect euro zone inflation to fall to 5.2% in July from 5.5% in June.Non-harmonised inflation in Germany fell to 6.2% in July from 6.4% the previous month. The data from Germany, the euro zone’s biggest economy, come as the European Central Bank is still looking for evidence that underlying inflation has turned a corner.Germany’s core inflation rate, which excludes volatile items such as food and energy, stood at 5.5% in July, down from 5.8% in June. Food prices continued to show above-average growth, posting a 11.0% year-on-year increase. Energy prices were 5.7% higher in July than in the same month of the previous year. “The inflation balloon is only slowly sinking back to the European Central Bank’s target of 2%,” said Thomas Gitzel, chief economics at VP Bank Group. “The European monetary guardians will probably not be able to sit back and relax just yet.”The ECB raised rates for the ninth successive time on Thursday but left the door open to a pause in September, even though core inflation seems to be stickier than previously thought.($1 = 0.9083 euros) More

Inflation as measured by the personal consumption expenditures (PCE) price index increased 0.2% last month after edging up 0.1% in May, the Commerce Department said on Friday. In the 12 months through June, the PCE price index advanced 3.0%. That was the smallest annual gain since March 2021 and followed a 3.8% rise in May.Excluding the volatile food and energy components, the PCE price index climbed 0.2% after increasing 0.3% in the prior month. That lowered the year-on-year increase in the so-called core PCE price index to 4.1%, the smallest advance since September 2021. The annual core PCE price index rose 4.6% in May.Annual inflation is easing as last year’s surge drops out of the calculation. Food commodity prices are back at levels seen prior to Russia’s invasion of Ukraine in February 2022. Economists polled Reuters had forecast the core PCE price index gaining 0.2% and rising 4.2% year-on-year. The Fed tracks the PCE price indexes for its 2% inflation target.The U.S. central bank on Wednesday raised its policy rate by 25 basis points to the 5.25%-5.50% range, a level last seen just prior to the 2007 housing market crash and which has not been consistently exceeded for about 22 years.Fed Chair Jerome Powell told reporters it was “certainly possible that we would raise the funds rate again at the September meeting if the data warranted.” Powell also added that “it’s possible that we would choose to hold steady at that meeting.” Slowing inflation and moderate consumer spending growth have increased the chances of the economy achieving the soft landing envisaged by policymakers. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.5% last month, the Commerce Department also reported. Data for May was revised up to show spending gaining 0.2% instead of 0.1% as previously reported. Economists had forecast spending increasing 0.5%. The data was included in the advance estimate of second-quarter gross domestic product, which was published on Thursday.Consumer spending increased at a 1.6% annualized rate last quarter, slowing from the 4.2% pace logged in the January-March period. The moderation in spending was partly blamed on difficulties adjusting the data for seasonal fluctuations following the jump in the first quarter.The increase was enough to help boost economic growth to a 2.4% rate last quarter from the 2.0% pace reported in the first three months of the year. More

LONDON (Reuters) – Ben Bernanke, who chaired the U.S. Federal Reserve during the global financial crisis, will lead a review of the Bank of England’s forecasting processes, the British central bank said on Friday.British lawmakers have criticised the failure of the BoE to forecast the scale of last year’s surge in inflation, which hit a 41-year high of 11.1%, and last month the BoE said it would hold an externally led review to look for improvements.”The review aims to develop and strengthen the Bank’s support for the Monetary Policy Committee’s approach to forecasting and monetary policy making in times of uncertainty,” the BoE said in a statement announcing Bernanke’s appointment.Bernanke, who was awarded the Nobel memorial prize for economics last year, will be assisted by the BoE’s internal review unit and report back in the spring of 2024.”The UK economy has faced a series of unprecedented and unpredictable shocks. The review will allow us to take a step back and reflect on where our processes need to adapt to a world in which we increasingly face significant uncertainty,” Governor Andrew Bailey said.BoE Chief Economist Huw Pill said last month that the central bank’s main forecasting models focused on data from the past 30 years, when inflation was generally low. Older data – covering periods when inflation was typically higher – was hard to incorporate as the structure of the economy had changed significantly. This made it difficult to forecast how fast inflation would fall now, he said. More

According to Refinitiv Lipper data, global money market funds drew investments worth a net $38.74 billion in the week ended July 26, the biggest amount since July 5.The Federal Reserve and European Central Bank raised interest rates earlier this week, while on Friday, the Bank of Japan made its yield curve control policy more flexible, signalling that it is shifting away from years of ultra-loose monetary policy.The U.S. and European money market funds attracted purchases worth $24.62 billion and $11.84 billion, respectively, on a net basis. Meanwhile, Asian funds recorded about $231 million outflows in the week.Global equity funds drew about $1.3 billion worth of inflows after witnessing a weekly outflow of $2.2 billion the previous week.Materials, financials, and consumer staples sector funds received $667 million, $627 million and $387 million in inflows, respectively. Meanwhile, tech funds faced its first weekly outflow in four weeks, worth about $1.57 billion.Investors were also net buyers of global bond funds as they poured about $6.06 billion, which extended inflows into a fifth straight week.Corporate and government bond funds obtained $2.32 billion and $318 million, respectively, in inflows.Data for commodity funds showed investors withdrew about $227 million from energy funds. They also disposed of about $34 million worth of precious metal funds in their ninth weekly net selling in a row.Meanwhile, data for 24,115 emerging market funds showed bond funds received $1.14 billion, the biggest amount in three weeks, while equity funds had a third weekly net purchase worth about $157 million. More

LONDON (Reuters) – Argentina’s preliminary deal with the International Monetary Fund is set to combine reviews of its $44 billion loan programme, according to four sources, potentially paving the way for streamlining payments to the cash-strapped country.Latin America’s third biggest economy has been seeking to bring forward some of the IMF disbursements scheduled for this year, as the country battles a severe financial crisis that could worsen further due to a lack of international reserves. Argentine government officials have been trying to reach a so-called Staff Level Agreement with the IMF that would cover the country’s progress in relation to the fund’s fifth and sixth reviews of a 2022 loan, the sources added, asking not to be named because the talks are private. Each review covers three months.Combining the two reviews would give Argentina access to 5.5 billion of IMF’s special-drawing rights (SDRs), equivalent to about $7.3 billion. But it is not clear if merging the reviews would automatically lead to a combined payment, what the IMF calls a rephasing of disbursements. The move comes after fifth review talks were delayed amid discussions over some economic measures needed to maintain IMF disbursements. These included the introduction of more peso exchange rates to safeguard reserves. A spokesperson for the Economy minister didn’t immediately reply to a request for comment.An IMF spokesperson said: “Discussions between the teams continue to be very constructive” and “are aimed at reaching staff level agreement.”Once a Staff Level Agreement is reached, this is presented to the IMF executive board and if it is signed off, this will trigger the release of cash. Argentina’s fifth review — linked to a $4 billion payment – was set to be completed in June but negotiations on a agreement were delayed due to IMF “prior action” demands on Buenos Aires, one of the sources added, without providing any further details.Prior actions are measures a country needs to implement before the Fund signs off on a revision of a programme or a loan programme. The sixth review – linked to a $3.3 billion payment – was originally planned for September, but can be brought forward because the required second-quarter data is already available. The Fund has merged reviews before with other programmes. Earlier this year, the Fund combined reviews for Uganda and Nepal, and also a year ago with Pakistan.LONG AWAITED DEALBoth sides have recently said that a Staff Level Agreement was close. Timing is tricky for Argentina. The IMF board won’t be able to convene before the summer recess in the first half of August, so the final approval and disbursements would arrive later next month, two sources said.The country urgently needs to find financing to pay back some $3.4 billion it owes to the IMF on a 2018 loan and which is due in the coming days.To avoid a default with the multilateral lender, it needs to pay $2.6 billion on July 31 and almost $800 million on Aug. 1.With no liquid currency reserves, Buenos Aires may need to use a swap line with Beijing. Argentina used $1.1 billion in yuan from a recently extended and expanded swap line with China’s central bank to complete its June payment to the IMF. Facing a recession and triple-digit inflation, Argentina is scheduled to have four reviews between December and September 2024 on its IMF programme. More