Charting the Global Economy: China Cuts Rates; Mild US Inflation

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(Bloomberg) — The People’s Bank of China unexpectedly lowered the cost of its one-year policy loans by the most since April 2020, acting days after cutting a key short-term rate in a sign of greater support for the slowing economy.

The PBOC’s string of rate cuts underscores authorities’ growing urgency to support growth, which disappointed in the second quarter as faltering consumer spending more than offset an export boom. 

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Conversely, strong demand from US households and businesses fueled a growth acceleration as the first half of the year drew to a close. In June, consumer spending remained healthy and the Federal Reserve’s preferred measure of underlying inflation rose at a modest pace — encouraging signs for officials looking to tamp down price pressures without breaking the economy.

Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy:

Asia

China’s central bank decreased the rate of the medium-term lending facility by 20 basis points to 2.3%, the first reduction in almost a year. The cut followed the PBOC’s trim of the seven-day reverse repo by 10 basis points on Monday. The monetary authority has recently downplayed the MLF in favor of the short-term rate to guide markets in a way more similar to global peers.

Prime Minister Narendra Modi’s new government outlined vast spending on unemployment and projects favored by key political allies, in the most high-profile acknowledgment to date by the ruling party of India’s changed political landscape following a punishing election setback last month.

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China’s gold imports plunged last month, a sign that the nation’s buyers are deterred by the precious metal’s elevated prices amid a sluggish economy. Purchases from overseas by the world’s biggest bullion consumer fell nearly 60% to 58.9 tons, the lowest since May 2022. China’s central bank also halted purchases of gold in May and June, after an 18-month buying spree.

US

The so-called core personal consumption expenditures price index, which strips out volatile food and energy items, increased 0.2% from May. Treasuries rallied as the inflation data came in mostly as expected, even as quarterly data Thursday suggested past figures might have been revised higher.

Canola oil — invented in Canada 50 years ago as a healthier, shelf-stable cooking fat — may soon venture beyond the world’s kitchen cupboards to a spot in the airways. A growing number of energy and agriculture firms in the US have been boosting spending in an effort to plant and crush more canola, an oilseed that could play a big role in the nascent renewable fuel markets.

The US is on track to run its largest federal deficit outside of crisis times such as the Covid-19 pandemic, the global financial meltdown and World War II. The extra-large shortfall is more fuel for the election year blame game in Washington, with Republicans decrying out-of-control Democratic spending and Democrats retorting that the culprit is Republican tax cuts that have shriveled revenue. But a closer look shows a more complicated picture.

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Europe

Euro-area private-sector activity barely grew this month as its top economy unexpectedly slumped. S&P Global’s composite Purchasing Managers’ Index fell to 50.1 this month, restrained by a surprise contraction in Germany.

Britain’s private sector companies reported a surge in confidence, hiring and new orders after Labour’s landslide election victory, a sign the new government may enjoy stronger growth.

Emerging Markets

Mexico’s headline inflation accelerated more than expected early this month, potentially clouding investor bets that Banco de Mexico will resume interest rate cuts in August.

Brazil’s annual inflation accelerated more than expected by all analysts in early July, supporting traders’ bets the central bank will have to hike borrowing costs later this year after holding them steady next week.

Thanks to its cheap labor, year-round harvests and close ties with mega-buyer Beijing, Brazil has rapidly encroached on the US’s long-held position as the world’s top supplier of key crops. Now, it has a new tool in its bid to unseat American agriculture: Gen-Z.

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World

Even as the world’s economy expands at a solid pace, deficits have piled up thanks to heavy spending in the wake of the pandemic. As a result, the amount of government debt from major nations is seen swelling by $2 trillion this year to a record $56 trillion, according to the OECD.

Global coffee drinkers who’d hoped the price of their daily fix would soon stop rising are due for a bitter wake-up call: it’s about to get even worse. Both the high-end arabica beans favored by coffee chains like Starbucks Corp. and the more budget-friendly robusta variety have spiked in price, thanks to major supply disruptions from Vietnam to Brazil.

In addition to China, Hungary’s central bank extended its more than yearlong easing cycle, while Canada cut for a second straight meeting. Policymakers in Turkey kept rates on hold, as did central bankers in Paraguay and Ghana. Nigeria delivered its 12th straight rate hike, and Russia also raised rates.

—With assistance from Ruchi Bhatia, Maria Eloisa Capurro, Kim Chipman, Christopher Condon, Clarice Couto, Enda Curran, Jarrell Dillard, Alice Gledhill, Sybilla Gross, Michael Hirtzer, John Liu, Yujing Liu, Ilena Peng, Tom Rees, Andrew Rosati, Augusta Saraiva, Zoe Schneeweiss, Dayanne Sousa, Dan Strumpf, Alex Vasquez and Alexander Weber.

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