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This week

In a week that saw fast food behemoth McDonald’s forced to increase the price of its cheeseburgers by up to 20p, rising from 99p to £1.19, economists began to fear what else was on the menu as yet more signs of inflation began to seep through into the daily life.

There was plenty to digest during the week, with Wednesday bringing perhaps the most important fillet of economic news, seeing the US Federal Reserve carry on its almost relentless rate rise trajectory. In a move almost wholly anticipated by the market, the central bank raised US rates by a further 0.75%, now leaving their overnight borrowing costs at a range of 2.25-2.5%.

Alongside with the announcement, the Fed also gave away a few nuggets of interest to aid investors, commenting that it still remains "highly attentive" to inflationary risks.

Interestingly although they commented that job gains have remained "robust," Fed officials noted that "recent indicators of spending and production have softened," a potential nod to the fact that the aggressive rate hikes the bank has already put in place are finally beginning to have an effect.

The Fed also said the lack of clear visibility into the future of the economy means they can provide reliable guidance about where its policy is headed only on a "meeting-by-meeting" basis. The words of Jay Powell and his team and their neglect to automatically commit to further rate increases acted as anything but the final straw for US markets, with investors rejoicing at the news. The tech heavy NASDAQ index, rocketed 4.2% shortly after, with the more general S&P 500 index rising an impressive 2.75%.

However, the problems the Fed are grappling with became immediately apparent the following day, as GDP data showed that the US economy had unexpectedly contracted during the second quarter. Dragged down by poor consumer figures, with retail spending growing at its slowest pace in two years, coupled with business spending also declining, the chips were certainly down as a recession looms. With the chances of hard times ahead hopefully dissuading the Fed from hiking too many more times, US markets extended their winning streak, rallying further on the news.

Almost sandwiched between those US data releases, on domestic shores, the British Retail Consortium (BRC) released their Shop Price Index numbers. Measuring the change in the price of goods purchased at BRC-member retail stores, the current month has seen the highest rate of shop price inflation since the index began in 2005, as heightened cost pressures continued to filter through to customers. The data showed that some of the biggest price rises were actually seen in dairy products, including butter and milk, the thought of which may be enough to give consumers the shakes…

Next week

The coming five business days not only ushers in a new week but also a new month as summer gets into full swing. With August named in honour of the first Roman Emperor, Augustus, and chosen because it was the period of several of his great triumphs, it is only apt that we start with Italian data.

During what has been a tumultuous month in Italian politics, with Mario Draghi resigning as Prime Minister, it will be interesting to get some gauge of how the economy is performing, in the form of manufacturing PMIs. Giving their ratings on current business conditions, the data acts as a leading indicator of economic health, with businesses reacting quickly to market conditions, and their purchasing managers holding perhaps the most current and relevant insight into the company's view of the economy. The numbers will come as part of a wider range of European data, covering PMI readings for all of the bloc’s major economies, including Germany and France, as well as for here in the UK.

In what should be a busy end to the week, our very own Caesar of the Bank of England (BoE), Andrew Bailey, and those on Threadneedle Street, address the media about their latest views on the domestic economy. With a 0.5% rate rise very much priced in by the market, it will be interesting to hear the forward guidance from the bank as the cost of living crisis continues to bite.

The week will be wrapped up in the US, as the Bureau of Labor Statistics releases the nation’s Non-farm Payroll numbers. A key piece of information when determining the US central bank’s next rate move, it provides plenty for economists to get their teeth stuck into. Acting as a key metric for the US labour market, the data will be accompanied by Average Hourly Earnings, allowing us to gauge future inflation expectations as the more consumers earn, the more they tend to spend, something that will be watched very closely by US Federal Reserve.

The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding as at 29 July 2022.