US retail sales rose 0.7% in July from the previous month – well ahead of economists’ expectations of a 0.4% increase and a marked acceleration from June’s 0.3% pick-up. That data demonstrates how American households are using their rising wages to shield the US economy from a recession – but take those numbers with a grain of salt. First, the figures aren’t adjusted for inflation, meaning some of that increase can simply be explained by higher prices. Second, the numbers only reflect spending on goods, not services. And third, the data was skewed by Amazon’s Prime Day event, which significantly bolstered online sales that month.
Wages are up in the UK too, with the country’s average pay (excluding bonuses) up 7.8% in the three months to June versus a year ago. Not only did that top economist forecasts of 7.4%, it also marks the highest reading since records began in 2001. For the Bank of England (BoE), that’s a worrying signal that it hasn’t yet broken the wage-price spiral that’s feeding inflation across the economy. That’s when rising prices of goods and services encourage employees to demand higher wages, which then leads to more spending and higher inflation. And as companies raise the prices of their goods and services to offset their own higher wage costs, the loop leads to higher and higher – or “spiraling” – inflation.
Case in point: consumer prices in Britain were 6.8% higher in July than they were a year ago. While that’s slightly above the 6.7% rate expected by economists, it’s a chunky decrease from June’s 7.9% pace, mainly thanks to July’s lower energy prices. But even after the big drop off, inflation’s still more than triple the BoE’s 2% target. What’s more, core inflation – which excludes volatile food and energy prices – held steady at 6.9% in July instead of ticking down as economists had expected. Taken together, the data shows that the BoE’s job is nowhere near done.
In a bid to bolster its faltering economy, China’s central bank unexpectedly cut a key interest rate by the biggest margin since 2020. The People’s Bank of China (PBoC) reduced the rate on its one-year medium-term lending facility – the main rate used when lending to major banks – by 0.15 percentage points to 2.5% last week, the second reduction since June. A short-term policy rate was also lowered, but by 0.10 percentage points.
Meanwhile, Japan’s economy expanded at a much faster rate than forecast, with a hefty bump in exports more than offsetting weak results for both business investment and private consumption. The economy grew at an annualized pace of 6% in the second quarter from the one before – more than double the 2.9% rate forecast by economists and the strongest growth since late 2020. Nearly two percentage points of that increase came from a combination of exports including amped-up car sales, resurgent inbound tourism, and the effect of a weaker yen.
