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In our Market insights, Prosperity Investment Management examines the latest developments across the globe's biggest financial markets - providing you with all the latest information you need to know.
US inflation at lowest since 2021 as fuel prices fall
Prices for items such as eggs, petrol and furniture dropped across the US last month, helping to slash inflation to less than half of its peak over a year ago.
Inflation, the rate at which prices rise, was 4% over the 12 months to the end of May, the Labour Department announced. This value was down from 4.9% in April and marked the 11th month in a row that price increases have eased.
The update comes as the US central bank meets to debate whether it needs to do more to fight inflation. Officials have most recently raised borrowing costs in the world's largest economy sharply since last year to try to rein in rapidly rising prices, pushing the Federal Reserve's key interest rate to more than 5%, from near zero in March 2022.
Analysts expect the Federal Reserve to leave interest rates unchanged for this month, reflecting the progress made to ease price pressures as higher borrowing costs weigh on borrowing and spending.
The price of eggs has dropped 13.8% since last year - the biggest drop since 1951. Gasoline prices are down nearly 20% also.
Overall, at 4%, inflation is the lowest it has been since March 2021, the Labor Department said. But the update also showed that prices in many parts of the economy are still rising steadily - and far faster than the 2% rate the Fed considers healthy.
In particular, measures of housing costs, including rents, continue to climb sharply. There have also been steep price rises for beer, women's clothing, and services from car maintenance to school fees.
Inflation in the US hit a peak of 9.1% in June 2022, as the war in Ukraine led to spikes in energy and food prices. That was the fastest rate since November 1981.
Core inflation, which is seen as a better gauge of underlying pressures because it does not include changeable food and energy products, rose in value by a margin of 0.4% from April to May.
New Zealand enters technical recession after economy shrinks by 0.1% in the first quarter
New Zealand’s gross domestic product fell 0.1% in the first quarter, according to government data published Thursday, as its central bank embarked on one of the most aggressive rate hike cycles in the world.
The latest data from Wellington marks a technical recession for the economy, after reporting a revised 0.7% decline in the final quarter of 2022.
Compared with a year ago, the economy grew 2.9% in the first quarter. Economists surveyed by Reuters expected New Zealand to mark a contraction of 0.1% quarter on quarter and growth of 2.6% year on year.
The New Zealand dollar dropped 0.23% against the U.S. dollar after the release. Stocks were little changed — the S&P/NZX 50 Index traded 0.144% higher.
In its May meeting, the Reserve Bank of New Zealand raised its benchmark rate to a 14-year high, with the 25-basis-point hike lifting its official cash rate to 5.5%.
The contraction was driven by production declines in business services, which fell 3.5%, and transport, portal and warehousing, which was down 2.2%.
Production in the information media and telecommunications and property sectors rose by 2.7% and 0.7%, respectively.
New Zealand also saw a contraction in trade: export prices fell 6.9% and import prices dropped 5.4%.
China cuts a key policy rate for first time in 10 months as the observed economic rebound continues to cool
China’s central bank lowered its key medium-term lending rates on Thursday, in a much anticipated move as the economy’s post-Covid recovery continues to lose momentum.
The People’s Bank of China lowered the rate on 237 billion Chinese yuan ($33 billion) of one-year medium-term lending facility (MLF) loans to some financial institutions by 10 basis points — from 2.75% to 2.65%.
The central bank last lowered the rate on 400 billion yuan of one-year MLF loans in August, making Thursday’s move the first such cut in 10 months.
China’s medium-term lending facility is a funding channel introduced to allow the central bank to inject liquidity into the banking system and influence interest rates for certain loans which are required.
Earlier this week, the central bank cut its seven-day reverse repurchase rate by 10 basis points from 2% to 1.9%, injecting 2 billion Chinese yuan through its seven-day repos. China’s largest state-owned commercial banks cut deposit rates last week, according to the latest data available.
Shortly after the announcement, the dollar gained 0.2% against the onshore Chinese yuan to 7.1744, its lowest levels since November.
The Shanghai Composite was 0.3% higher while the Shenzhen Component was relatively flat in comparison. Hong Kong’s Hang Seng index rose 1.3% and the Hang Seng Tech index jumped by more than 2%.
