Scorching inflation hits 40 year high in the US

<p>Kia ora,</p><p>Welcome to Thursday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.</p><p>I'm David Chaston and this is the International edition from Interest.co.nz.</p><p>Today we lead with news that it is all about inflation and its pressure on central banks.</p><p>First up today,<strong> </strong><a href="https://www.bls.gov/news.release/cpi.nr0.htm" target="_blank"><strong>the headline American CPI inflation rate rose sharply in June</strong></a> by +9.1% and well above the expected +8.8%. That's their largest rise since 1981. But their core inflation rate actually fell to 5.9% in June from 6.0% in May. That shows that most of the inflation pressure is coming from petrol (+60% year-on-year) and food (+10%). The May to June food price rises were less than the prior month. So really, its an energy story.</p><p>In the US, food makes up 13.4% of their index, and fuel 7.3% (3.5% for household use, and 3.8% for petrol). For New Zealand, food makes up 18.5% of our index, while fuels 7.5% (4.0% for household use, and 3.5% for petrol). We tax ourselves a lot more for petrol, so their change just seems a very big increase, not that they are actually spending more than us. The New Zealand CPI data for the June quarter is due out on Monday, and analysts expect ours to rise from 6.9%. Actual forecasts aren't released yet but they will undoubtedly be above 7%.</p><p>But with the headline rate so high, that does to seem to open the door to a full +1.0% rate hike when they meet next to review rates on Thursday, July 28 NZT.</p><p>The latest US Fed <a href="https://www.federalreserve.gov/monetarypolicy/beigebook202207.htm" target="_blank"><strong>Beige Book</strong></a> reports an economy ticking over at a good level, but with signs of a coming slowdown. Most Districts reported that consumer spending moderated as higher food and petrol prices reduced households' discretionary income. Due to continued low inventory levels, new car sales remained sluggish.</p><p>As we have not