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Investment Institute
Weekly Market Update

Take Two: US inflation eases, prompting hopes of smaller rate hikes; World Bank cuts growth forecast

  • 16 January 2023 (3 min read)

What do you need to know?

US inflation eased further to 6.5% on an annual basis in December, from 7.1% in November - the slowest annual increase since October 2021. On a monthly basis, the Consumer Price Index (CPI) fell 0.1%, driven by lower gasoline prices, and was the first month-on-month drop since May 2020. Core CPI, which excludes food and energy, was up 0.3% on the month. The news supported hopes the Federal Reserve (Fed) could adopt a less aggressive approach at its February policy meeting, with expectations coalescing around a 25-basis-point hike. One member of the Fed’s rate-setting committee, Patrick Harker, said that this would be an “appropriate” level.

Around the world

Global growth is expected to slow to 1.7% this year and 2.7% next, with the world “perilously close” to falling into recession, according to the World Bank. It downgraded its growth forecast from 3% for 2023 and 2024 due to continued high inflation and interest rates, and the impact of the Ukraine war, and warned that “any new adverse development” could push the global economy into recession. Meanwhile, the World Economic Forum ranked the cost-of-living crisis as the most severe risk to the global economy over the next two years. Climate change remains the biggest long-term risk, it said, as it prepares for its annual meeting in Davos, Switzerland, this week.

Figure in focus: 2.1 billion

Around 2.1 billion trips are expected to be made within China during the Lunar New Year period, after the country reopened its borders to overseas travellers for the first time since March 2020. That represents a 99.5% increase from last year and around 70% of pre-pandemic levels, according to the Chinese government, and marks a crucial step in its retreat from its strict ‘Zero-Covid’ policy. The re-opening of the economy is expected to put upward pressure on prices; last week data showed annual inflation rose to 1.8% in December from 1.6% in November, on the back of rising food prices.

Words of wisdom:

The Montreal Protocol: A global agreement to phase out the manufacture and use of chemicals responsible for the depletion of the ozone layer, such as those used in refrigeration and aerosol production. Signed in 1987, the Protocol was the first treaty to have achieved universal ratification in United Nations (UN) history. Last week, a UN-backed panel of experts confirmed the phase-out of nearly 99% of these ozone-depleting chemicals – putting the ozone layer on track to recover to 1980 values by 2040 if current policies remain in place, though by 2045 in the Arctic and 2066 in the Antarctic.

What’s coming up

On Tuesday China reports fourth quarter GDP numbers and its latest unemployment rate. The Bank of Japan holds its first monetary policy meeting of the year on Wednesday, when the UK and Eurozone also announce updated inflation numbers. On Thursday the Central Bank of Turkey meets to decide on interest rates while the US reports on Housing Starts. Updated inflation data for Japan lands on Friday.

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