FirstFT: US inflation cools to 3% as interest rate rises take hold

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Good morning. Today’s top story is on US inflation, which eased last month to its slowest rate in more than two years.

US inflation fell sharply to 3 per cent in June, sending the dollar lower and highlighting the Federal Reserve’s relative success at bearing down on price pressures.

The improved picture in Wednesday’s data stands in sharp contrast to other advanced economies, such as the UK where the Bank of England is struggling to control inflation of 8.7 per cent. China’s economy, meanwhile, teetered on the brink of deflation in June, with flat annual CPI, adding to calls for more stimulus.

The major US stock indices hit 15-month highs; the two-year Treasury yield, which moves with interest rate expectations, fell to a two-week low of 4.73 per cent; and the US dollar index, which measures the greenback against a basket of six currencies, hit its weakest point in 15 months.

The annual increase in the consumer price index slowed from 4 per cent in May to 3 per cent in June, the slowest rate of inflation since March 2021, compared with expectations of 3.1 per cent.

“After a punishing stretch of high inflation that eroded consumers’ purchasing power, the fever is breaking,” said Bill Adams, chief economist at Comerica Bank.

Here’s what I’m keeping tabs on today:

Economic data: Monthly oil market reports will be released by the International Energy Agency and Opec. France has consumer price index and HICP inflation rate figures for last month, while final June producer price index data is due from the US.
South Korea interest rate decision: Economists expect the Bank of Korea to hold rates at 3.5 per cent for the fourth straight meeting. (Bloomberg)
Meetings: The EU-Japan summit begins in Brussels, attended by European Council president Charles Michel, European Commission president Ursula von der Leyen and Japanese prime minister Fumio Kishida.
Thailand’s high-stakes vote for PM: Parliament will vote for new prime minister. Pita Limjaroenrat, whose progressive Move Forward party won big in May’s general election, faces various obstacles to become prime minister and supplant the military-backed government. (The Guardian)

Five more top stories

1. Elon Musk has launched xAI, an artificial intelligence company aiming to challenge the dominance of ChatGPT owner OpenAI. The company will be led by Musk, who has also secured thousands of GPU processors from Nvidia, which are required to build large language models that consume vast amounts of content. Here are more details on Musk’s plans for AI.

2. At Nato’s summit this week, allies were careful to stress their staunch support for Ukraine in the face of Russia’s invasion. But after Volodymyr Zelenskyy blasted Nato for its “absurd” lack of a clear timeline for Ukraine’s entry, tensions began spilling into the open. Here’s more on the frustrations between Ukraine and its allies.

3. EY China has refused to pay fees owed to its global headquarters for more than a year in a dispute over IT services. The Chinese arm says the services cannot be fully used after Beijing tightened data security rules, according to people familiar with the matter. Read more on the tussle between EY’s global bosses and its semi-independent member firms in China.

4. Japanese regional banks have been accused by the country’s financial regulators of “gender-washing” in disclosures to investors due to legal ambiguity over leadership roles occupied by women. Here’s what the Financial Services Agency’s survey revealed about female representation in management at regional banks.

5. North Korea has fired an intercontinental ballistic missile into waters between the Korean peninsula and Japan, days after threatening to shoot down US reconnaissance planes it accused of violating its airspace. Japan’s defence ministry said the missile flew for about 74 minutes, the longest flight time for any North Korean long-range missile.

The Big Read

Four decades after Ronald Reagan rejected large-scale US government intervention in the economy, Joe Biden is embracing it wholeheartedly with a raft of subsidies for domestic producers in strategic sectors, in the hope of creating hundreds of thousands of new jobs. Will the president’s policies transform the American economy in a way that is durable and have a tangible impact that resonates with voters?

We’re also reading . . .

Chart of the day

Line chart of Yen per dollar showing Japan's currency rallies on hopes of tweak to yield curve control

The yen strengthened past ¥140 against the dollar on Wednesday on bets from currency and bond traders that the Bank of Japan could soon begin its pivot away from its ultra-loose monetary policy. The 3.5 per cent rise to ¥139.5 against the dollar in July set the Japanese currency on a tentative course for its best month since the country’s finance authorities intervened late last year to prop up the currency.

Take a break from the news

Want some fresh fashion inspiration for the summer? FT’s deputy fashion editor Carola Long suggests looking to Ken, the real style star of the upcoming Barbie movie.