Key information from the past week
1. Poland: a Flash Estimate of CPI inflation in July
According to a Statistics Poland (GUS) flash estimate, consumer prices rose by 0.4% in July relative to June and by 15.5% year-on-year. Expectations were for 0.5% and 15.6%, respectively. If this CPI level persists after the final reading, it could mean a stabilization of inflation and its temporary peak (temporary, as we are about to face quite significant increases in energy prices, which will have a pro-inflationary effect). Meanwhile, in August-September, the base effects should already begin to make themselves known. One of the major factors influencing CPI inflation is PPI (industrial price) inflation, which has been rising steadily so far. The key question, therefore, is whether, with possibly rising industrial prices and a possibly shrinking consumer demand (predicted slowdown, weaker real wage growth), companies will still be able to pass on price increases to consumers, or whether they will be forced to cut down margins. In the latter scenario, there may be some "decoupling" of CPI from PPI.
Source: GUS, Bloomberg. Own compilation.
2. Fed: an Interest Rate Hike
In line with market expectations, the Fed raised interest rates by 75 base points to a range of 2.25-2.50, and indicated that further rate hikes should be expected until maximum employment and a 2-percent inflation over the longer term are reached. At the same time, in line with decisions made in May, the Fed announced a reduction in its balance sheet by reducing its holdings of treasury securities ($30 billion, and $60 billion per month from September) and agency mortgage-backed securities (MBS; $17.5 billion and $35 billion per month from September). While the Fed points to weakening economic indicators for consumer spending and production, it also highlights a strong job growth and continued low unemployment. It also points to the high level of inflation associated with the pandemic and reflecting the imbalance between demand and supply, higher levels of food and energy prices, and widespread price pressures. The Fed also stresses its strong commitment to ensuring that inflation returns to the target range.
Source: Bloomberg. Own compilation.
Source: Bloomberg. Own compilation.
3. US: the GDP for the Second Quarter of 2022 (Advanced)
According to a Bureau of Economic Analysis advanced estimate, the growth rate of the US economy in Q2 2022 was -0.9%, compared to the expected 0.4% and to the Atlanta Fed's GDPnow model estimate of -1.6%. The decline in real GDP reflected declines in: private inventory investment, residential fixed investment, federal government spending, state and local government spending and non-residential fixed investment, which were partially offset by increases in exports and personal consumption expenditures.
Source: BEA. Own compilation.
Source: Atlanta FED, BEA. Own compilation.
4. Germany: IFO
Further readings of sentiment indicators confirm the deteriorating situation in the German economy. In July, German business sentiment deteriorated further, as measured by the IFO index, which fell to 88.6 points (June: 92.2 points). A dynamic deterioration is being felt in all basic sectors of the economy. In the industrial sector, pessimism about the coming months has reached its highest level since April 2020. This pessimism extends to almost all industries. In the services sector, the slump was particularly pronounced in company expectations. The mood has reversed even in tourism and hospitality, despite considerable recent optimism in this area. The situation is similar in retail, where every segment's assessment of the future situation is negative. The IFO's dynamics are in line with what is happening with sentiment around the world.
Source: IFO. Own compilation.
Source: Bloomberg. Own compilation. Data as of July 28, 2022.
5. Eurozone: Economic Growth
According to Eurostat's flash estimate, in the second quarter of 2022, seasonally adjusted GDP grew by 0.7 percent in the eurozone and by 0.6 percent in the European Union as a whole, compared to the previous quarter. Compared to the same quarter of the previous year, in the first quarter of 2022, seasonally adjusted GDP increased by 4.0% in both the eurozone and in the European Union. An analysis of the data from the various economies that have released data so far indicates a significant slowdown in y/y dynamics.
Source: Eurostat. Own compilation.
- Poland: PMI,
- Eurozone: PMI, unemployment, retail sales, industrial production, trade balance (Germany, France)
- USA: ISM, PMI, durable goods orders, trade balance