The Bank of Russia unexpectedly maintained its key interest rate at a record-high 21% , defying analysts’ expectations of another significant hike as inflation remains stubbornly elevated. The decision marks a shift toward a more measured approach in balancing economic growth and price stability. Key Details Inflation Concerns: Annual inflation climbed to 8.9% in November, well above the central bank’s 4% target , with inflation expectations reaching 13.9% in December. Policy Rationale: The central bank cited the significant tightening of monetary conditions after October’s 200-basis point hike as sufficient to resume disinflationary processes. Governor Elvira Nabiullina emphasized avoiding both economic overheating and severe slowdowns. Economic Overheating: Elevated government spending on the war in Ukraine and social programs, coupled with labor shortages and rising wages, have fueled strong domestic demand, exacerbating price pressures...
US consumer spending rose slightly less than anticipated in August, indicating a potential moderation in economic growth for the third quarter. However, economic expansion remains likely, as the goods trade deficit narrowed by the largest margin in nearly two years, according to data from the Commerce Department.
Consumer spending, which makes up more than two-thirds of US economic activity, increased by 0.2% in August, following a 0.5% rise in July. Economists had expected a 0.3% increase. The spending was mainly driven by services, such as housing, healthcare, and recreation, with a decline in goods spending, especially in motor vehicles and parts. Despite these declines, higher incomes and savings are supporting consumer spending through the rest of the year.
Inflation, measured by the Personal Consumption Expenditures (PCE) price index, rose by 0.1% in August, in line with forecasts, marking the smallest annual increase since February 2021. Over the 12 months through August, the PCE price index increased 2.2%, down from 2.5% in July. Core inflation, which excludes food and energy, rose 2.7% year-on-year, just above the Federal Reserve's 2% inflation target.
Despite the moderate rise in inflation and spending, economists do not believe the data will push the Federal Reserve towards a more aggressive 50 basis-point rate cut in November. Investors had hoped for another significant reduction in interest rates, but current expectations have shifted towards two 25 basis-point cuts in November and December, according to Olu Sonola, head of US economic research at Fitch Ratings.
Meanwhile, the goods trade deficit contracted by 8.3% in August, dropping by US$8.6 billion to US$94.3 billion, the largest decline since November 2022. This reduction was driven by a 1.6% fall in imports and a 2.4% increase in exports, adding to expectations of economic growth for the third quarter.
Overall, the data suggests that US economic growth remains strong, with third-quarter GDP growth estimates around 2.9%. The economy had expanded at a 3.0% rate in the second quarter of 2024.
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