Charting the Global Economy: Inflation Cools in US and UK

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(Bloomberg) — Inflation gauges in the U.S. and U.K. fell last month, sending bond prices higher after a deep sell-off and boosting bets on interest rate cuts.

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In the United States, the core Consumer Price Index – which does not include food and energy costs – fell for the first time in six months, capped by cheaper hotel stays, smaller advances in medical care services and relatively modest rent increases. UK inflation unexpectedly fell for the first time in three months thanks to lower travel costs.

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Meanwhile, China’s economy – unadjusted for price changes – last year registered its second-slowest pace since it began the shift to a market economy in the late 1970s. While real growth was 5%, the economy grew by only 4.2% after adjusting for deflation.

Here are some charts featured on Bloomberg this week on the latest developments in the global economy, markets and geopolitics:

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Consumer prices rose less than expected in December, a welcome decline that helped stem a deep sell-off in bond markets and reactivate bets that the Federal Reserve will cut interest rates sooner than previously thought.

When Fed officials meet in two weeks, they will likely reflect on a puzzling trend in markets: Since September, when they cut short-term interest rates by a full percentage point, long-term government bond yields have moved by a roughly equal amount — but in the opposite direction. For some on Wall Street, the mismatch is evidence that the US central bank has misread the economy and gone too far in cutting interest rates.

The wealthiest Americans are among the biggest winners of President Joe Biden’s time in office, despite his farewell speech in which he warned of “oligarchy” and the “tech-industrial complex” threatening American democracy.

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Europe

UK inflation fell unexpectedly for the first time in three months in December, prompting traders to increase bets on interest rate cuts from the Bank of England this year.

Germany’s economy contracted for a second straight year in 2024 and is unlikely to grow much in 2025, revealing the challenge the country’s new government faces once snap elections are held in February. GDP fell by 0.2% after falling by 0.3% in 2023.

UK retail sales recorded a surprise fall during the crucial Christmas period last month in a new setback for the Labor government’s hopes of reviving economic growth. Despite the increase in real income, households are in a cautious mood amid warnings that inflation will rise again and expectations of a slowdown in the decline in borrowing costs.

Asia

President Xi Jinping’s government met its 5% growth target last year, a clear-cut victory that came as no great surprise. The image released by the National Bureau of Statistics showed that China’s dual-track economy continued to rely on trade while consumer spending remained weak. However, nominal GDP growth – unadjusted for price changes – slowed to 4.2% in 2024, the second weakest pace since China began its transition to a market economy in the late 1970s.

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China’s trade surplus rose to a record high last year, driven by strong exports that boosted the economy, but it may soon be threatened by the incoming Trump administration. Strong demand from abroad has helped provide growth to the local economy, which has been burdened by a years-long housing crisis. Exports accounted for nearly a quarter of the economic expansion in 2024.

Emerging markets

Israel and Hamas have agreed to release dozens of hostages and stop the war in Gaza that has killed tens of thousands of people over the past 15 months and caused unrest across the Middle East. Qatari and American officials, who mediated between the warring parties, said that the ceasefire would begin on Sunday – one day before Donald Trump succeeds Joe Biden as US president – and would last six weeks.

Israel raised a record amount of debt last year to finance its multi-front war against Hamas and other Iranian-backed militias. The government borrowed NIS 278.4 billion ($75.9 billion), surpassing the country’s previous record of NIS 265 billion in 2020 during the Covid pandemic. Most of the borrowing – about 81% – was done in Israel’s domestic bond market.

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world

The International Monetary Fund has updated its global growth forecast for this year, driven by stronger-than-expected US demand and slower inflation around the world, which will allow central banks to continue cutting interest rates.

Indonesia unexpectedly cut interest rates, while Romania kept borrowing costs unchanged. The Bank of Korea kept interest rates steady while monitoring currency and political unrest, while Poland and Kazakhstan were unchanged.

China’s quest to feed itself has taken it to macadamia nut orchards in Kenya and cattle ranches in Bolivia, as part of a drive in recent years to diversify its food sources away from traditional Western suppliers. The loss of market share to countries allied with the United States is a win for countries of the Global South, which Beijing has sought to court at a time when geopolitics increasingly divides the world into distinct blocs.

-With assistance from Philip Aldrick, Irina Angell, Galette Altstein, Haley Gu, Annemarie Hordern, Camille Qualci, John Liu, Yujing Liu, Fiona MacDonald, Eric Martin, James Major, Sergio Mendoza, Helen Nyambura, Amara Omeukwe, Jana Rando, Tom Rees, Zoe Schneeweiss, Mark Schruers, Ben Stiverman, Alex Tanzi, Dan Williams and Nguyen Xuan Quynh.

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