Fed sees higher rates likely if inflation fails to come down. Minutes of the Federal Reserve (Fed) June meeting published on Wednesday show that officials were concerned that consumers were increasingly anticipating higher inflation and signalled that much higher interest rates could be needed to curb price increases. Members said the July meeting would likely see another 50 or 75 basis point move on top of the 75 basis point increase agreed in June. A basis point is one-hundredth of one percentage point. However, Peter Cardillo, chief market economist at Spartan Capital Securities in New York noted that "the declining commodity prices suggest that we probably have reached a peak in terms of energy prices, agricultural prices, and that's good news in terms of inflation."
Bank of England tells lenders to brace for economic storm. The Bank of England’s Financial Policy Committee (FPC) warned on Tuesday that the economic outlook for Britain and the rest of the world had worsened and told banks to increase their capital buffers to ensure they can weather the storm. The FPC pointed to Russia’s invasion of Ukraine for “sharply” intensifying inflationary pressures, especially for energy and other commodities. It explained that in addition, financial conditions tightened significantly of late, as central banks around the world are tightening their monetary policy to control rising prices by boosting borrowing costs. The FPC also noted that household debt relative to income has remained broadly flat in recent quarters. Nonetheless, the rise in living costs and interest rates will put increased strain on household finances in the coming months.
German industrial output rises less than expected in May. German industrial production rose less than expected in May as supply chain disruptions caused by the Russian invasion of Ukraine and pandemic-related lockdowns in China make it difficult to process orders, official data showed on Thursday. Output notched up 0.2 percent on the month, less than the 0.4 percent expected by economists. However, statistics agency Destatis revised up April’s figures to show a gain of 1.3 percent rather than the 0.6 percent originally reported. With the monthly baseline revised higher, the level of output was broadly in line or even a little ahead of expectations. On a yearly basis, industrial output declined by1.5 percent in May after easing 2.5 percent in April.
Australia’s central bank hikes interest rates for third consecutive time. Australia’s central bank delivered its first ever consecutive half-percentage point interest-rate hike and underlined its commitment to do whatever it takes to bring inflation under control. The Reserve Bank of Australia took the cash rate to 1.35 percent -- the highest since May 2019 -- in a move that was predicted by most economists. Inflation is forecast to peak this year and decline back towards the 2–3 percent range in 2023. As global supply-side problems continue easing and commodity prices stabilise, even though at relatively high levels, inflation is expected to moderate. “The Board expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead,” said RBA Governor Philip Lowe in a statement.
India's service sector sees fastest growth in over 11 years. India’s dominant services industry grew at the fastest pace in over 11 years in June amid strong demand, but persistent inflation remains worrying as prices charged to the consumer increased at the fastest rate in nearly five years, a private survey showed on Tuesday. The S&P Global Purchasing Managers’ Index (services PMI) increased to 59.2 in June—the highest level since April 2011—compared to 58.9 in May. This data indicates a strong recovery in services, also reflected in the robust goods and services tax (GST) collections. Despite this rise, S&P’s experts warned about the rate of input cost inflation and higher costs of chemicals, food, petrol, retail, and staff.