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Daniel Richards - MENA Economist
Published Date: 15 March 2023
Headline US CPI inflation came in in line with expectations in February as it slowed to a 17-month low of 6.0% y/y, down from 6.4% in January. Prices were 0.4% higher compared to the previous month. However, core inflation was higher than expected at 0.5% m/m (up from 0.4% in January) and was still at 5.5% on the annual measure. Core service inflation was at 7.3% y/y, the highest level since 1982, with continuing rises in shelter costs a major contributor.
With the stickier services elements of the basket continuing to come in hot, and annual y/y wage growth still high, the likelihood remains that the Fed will hike by 25bps at the upcoming March FOMC meeting despite the recent turmoil in segments of the banking sector. This appears to have been dampened down for now, but the chances of a 50bps hike remain slim given recent uncertainty even as inflation persists higher. The Fed is reportedly considering changes the rules for midsize banks with assets between USD 100bn and USD 250bn that could see more stringent liquidity requirements and tougher annual stress testing.
Chinese industrial production grew 2.4% y/y over the two months to February, a little under the consensus prediction of 2.6% growth. Manufacturing was up 2.1%. Retail sales were up 3.5% y/y over the same period, in line with expectations. The central bank kept its one-year medium-term lending facility rate unchanged at 2.75% this morning as had been anticipated.
The headline UK unemployment rate fell back to 3.7% over the three months to January, down from 3.8% previously. The key wage growth measure meanwhile slowed to 5.7% y/y, down from 6.0% in the previous reading, with the drop in private sector wage growth from 7.3% to 7.0% the first slowdown in a year. This potentially alleviates some pressure on the Bank of England to raise rates even as the UK economy is looking weak, and with the Fed’s hiking trajectory now more uncertaint. Nevertheless, a hike at the upcoming March meeting is still the most likely scenario, especially if there is some fiscal loosening in the Chancellor’s budget due to be revealed today.
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