We'll get the latest reading on U.S. inflation today. You can read our main story here and follow our live markets coverage here. In the meantime, here is a look at key economic developments from around the globe. —Jeff Sparshott

U.S. labor productivity fell for the second straight quarter this spring while labor costs climbed, a bad sign for Federal Reserve officials trying to get inflation back under control. U.S. nonfarm labor productivity—a measure of goods and services produced per hour worked—fell at a seasonally adjusted annual rate of 4.6% in the second quarter from the prior quarter, the Labor Department said Tuesday. Unit labor costs, a measure of worker compensation and productivity, increased at a 10.8% pace in the second quarter from the prior quarter. The quarterly figures are volatile but the latest numbers follow a 7.4% productivity pullback in the first quarter, the sharpest drop in 74 years. "The Fed simply can't get to 2% inflation with this sort of productivity and wage growth," said Wells Fargo economist Sarah House.

Rising productivity allows companies to raise wages without raising prices and fueling inflation. The latest figures are a reversal from earlier in the pandemic, when businesses appeared to be adopting new technology to cope with worker shortages and limits to face-to-face contact. What gives? "The 2.5% slump in productivity over the past year–the worst since records began in 1948–is another illustration of the chasm that has opened up between the [gross domestic product] and employment figures," said Michael Pearce, senior U.S. economist at Capital Economics. "The only plausible explanation to our minds is that one or both of those series will be revised over the coming months, leaving productivity growth stronger and unit labor cost growth weaker."

The U.S consumer-price index for July is expected to increase 0.2% from one month earlier and 8.7% from one year earlier. Excluding food and energy, the CPI is forecast to rise 0.5% and 6.1%. (8:30 a.m. ET)

U.S. wholesale inventories for June are expected to increase 1.9% from the prior month. (10 a.m. ET)

Federal Reserve Bank of Chicago President Charles Evans speaks on the economy at 11 a.m. ET

Bank of England Chief Economist Huw Pill participates in online Q&A at 12 p.m. ET.
   
The U.S. federal budget deficit is expected to narrow to $175 billion in July from $302 billion one year earlier. (2 p.m. ET)

💬 WSJ’s Greg Ip moderates a panel on stagflation hosted by the Aspen Economic Strategy Group. Panelists include former Treasury Secretary Larry Summers, Minneapolis Fed President Neel Kashkari, BlackRock CEO Larry Fink, and AESG director Melissa Kearney. Register to watch the livestream free here. (2 p.m. ET)

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Economists estimate that U.S. inflation remained close to a four-decade high in July despite cooling energy prices. The Labor Department on Wednesday is expected to report that the consumer-price index rose 8.7% in July from the same month a year earlier, down from 9.1% in June, according to economists surveyed by The Wall Street Journal. June marked the fastest pace of inflation since November 1981. Core CPI, which excludes often volatile energy and food prices, is estimated to have accelerated in July by 6.1% from the same month a year ago, a sign that broad price pressures remain in the economy, Gwynn Guilford reports.

The CPI measures what consumers pay for goods and services. The figures will be released at 8:30 a.m. ET on Wednesday.

Microsoft is asking teams across the company to rein in some employee expenses as the software giant tries to control costs in the current economic environment. Managers at the Redmond, Wash., company have told staff of various cutbacks to the company’s budget, said people familiar with its plans. Some spending on business travel, outside training and company gatherings is being targeted, said the people. Microsoft has been looking for other ways of controlling costs. It has frozen hiring in some parts of the company and said last month that it plans layoffs of less than 1% of its workforce of about 181,000 employees. Companies across the tech sector have been trying to control costs to adapt to high inflation, economic-growth concerns and a slowdown in advertising spending, Aaron Tilley and Sarah Krouse report.

The chip industry that was bracing for a difficult period with laptop sales slumping is adjusting to a wider and sharper slowdown. “The market is worse than we thought it would be,” Mark Murphy, chief financial officer at memory maker Micron Technology, said Tuesday. The latest sign of near-term concern is that auto makers are becoming more cautious consumers of chips after struggling for about two years to secure adequate supply, Mr. Murphy said. Micron’s latest comments build on a flurry of bad news from chip makers, which have cited slowdowns in sales linked to PCs, graphics cards and videogames. Intel shocked the market two weeks ago with a quarterly loss and cut its full-year outlook. Advanced Micro Devices days later issued a muted outlook, and Nvidia on Monday warned that sales would come in below its own forecast, Asa Fitch reports.

The videogame industry is seeing a sharp slowdown in growth as people are going out again after a pandemic-fueled spurt of spending on game software, hardware and accessories. Industry executives and analysts say the easing of the health crisis is a leading factor. They also pointed to rising prices for essential goods, the war in Ukraine and a dearth of new blockbusters as other causes for the deceleration. Activision Blizzard—which is in the process of being acquired by Microsoft for around $75 billion—said last week that its sales and net income fell in the quarter ended June 30, while Electronic Arts and Take-Two Interactive Software each reported slower revenue growth compared with a year ago, Sarah E. Needleman reports.

Russian oil has stopped flowing through a pipeline that feeds countries in Central and Eastern Europe, dealing another blow to a region contending with the loss of vital energy supplies from Russia. Transneft PJSC, the government-owned oil-pipeline operator, said Tuesday that crude exports through Ukrainian territory had halted on Aug. 4. It blamed payment difficulties caused by Western sanctions on Moscow and said Ukraine’s pipeline operator had declined to carry crude after it didn’t receive funds. The move severs supplies through the southern branch of the Druzhba pipeline that carries oil to Slovakia, Hungary and the Czech Republic and will likely intensify European efforts to buy crude from non-Russian sources, Joe Wallace reports.

China’s headline consumer inflation rate surged to its fastest pace in two years in July, but a drop in core inflation points to a different problem: weak domestic demand. Headline consumer prices in the world’s second-largest economy rose by 2.7% in July from a year earlier, accelerating from June’s 2.5% gain, as food prices soared, China’s National Bureau of Statistics said Wednesday. The pace of increase approached the government’s target of around 3%. But core inflation, which strips out volatile food and energy prices, slowed to 0.8% growth in July, the lowest level in 14 months, due to slack domestic demand. China’s household spending remains one of the weakest links in the overall economy, which has been weighed down by a prolonged property-market slump and frequent Covid flare-ups across the country, Stella Yifan Xie reports.

Wednesday’s inflation report had at least one glimmer of good news for Beijing. Growth momentum in producer prices, which peaked at a 13.5% year-over-year pace in October last year, slowed for a ninth straight month in July as global commodity prices moderated. Prices charged at China’s factory gates rose 4.2% from a year earlier last month, versus June’s 6.1% increase. That moderation will ease pressure on Chinese manufacturers who have struggled to pass along higher costs to consumers.

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Real Time Economics comes to you from WSJ reporters and editors around the world. Today's issue was curated and edited by Jeff Sparshott (@jeffsparshott) and Greg Ip (@greg_ip) in Washington, D.C., and James Hookway (@JamesHookway) in London.

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