Welcome to your weekly macroeconomic round-up, where we spotlight a few of the most significant events in the last week.
US inflation rises to 6.8%, the fastest annual pace since 1982
Following the hawkish comments from Fed Chair Jerome Powell a few weeks ago, US inflation rose to 6.8% over the last 12 months, up from 6.2% in October. This was in line with economists’ expectations. Core inflation, which strips out volatile elements such as energy and food price inflation and is generally considered more sustainable, rose from 4.2% to 4.9%, in line with expectations. Once again, US inflation remains high, largely due to high energy prices and the increasing price of shelter, although there were price pressures present in most categories. The recent fall in the oil price will moderate the effect of energy prices on inflation but will not be sufficient to bring inflation back to the 2% target.
The data point is highly significant for both President Biden, who has been vocal on his ambition to slow inflation in recent weeks, and Fed Chair Jerome Powell, given the FOMC meeting due to take place this week. Powell has indicated that he is considering increasing the rate at which asset purchases are withdrawn from financial markets, the first step in monetary tightening to supress inflationary pressure.
UK growth falters as Omicron variant puts recovery on hold
Monthly GDP growth data for the UK showed that the economy grew by 0.1% in October, compared to expectations of a 0.4% expansion. The data leaves the UK economy 0.5% below the pre-pandemic level. Underlying the slowdown, hospitality was weak after a strong September, while industrial and construction activity contracted as supply chain disruption continues. In contrast, the increase in face-to-face appointments with GP surgeries continues to drive a recovery in health and social care activity. The news of Omicron and resultant restrictions is likely to further compound the slowdown in the hospitality sector meaning the outlook for the remainder of the year has worsened.
Global equity markets recovered some lost ground last week as the first clinical data began to show that vaccines were effective – with diminished efficacy – against the Omicron variant of COVID-19. The MSCI ACWI index increased 2.3% over the week but remains below the most recent high. Notably, the US equity market (measured by the S&P 500 index) recovered to make a new all-time high on Friday.
General nervousness persists however, as investors across regions focus on the likelihood of government restrictions and the implications for supply chains, which are already strained following the disruption over the last two years. As a result, safe haven assets, such as government bonds, maintained their level following the recent rally.
Look out for next week’s update, where we’ll be focusing on the PMI survey data and central bank meetings in the US and UK.
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