Inflation cools in US and Europe

Measures of underlying inflation cooled in the US and Europe in recent months, which could prompt the central banks to leave interest rates on hold, Bloomberg and Reuters reported.

The US core personal consumption expenditures price index, which strips out the volatile food and energy components, edged up just 0.1% in August, the smallest advance since late 2020. A similar metric in the euro zone showed the smallest annual increase in two years.

The PCE report is likely the last major release from the US government ahead of an expected shutdown on 1 October. The closure could last weeks or more and will put private-sector indicators in the spotlight.

The Federal Reserve's preferred measure of underlying inflation rose at the slowest monthly pace since late 2020, helping to lay the groundwork for policymakers to forgo an interest-rate hike at their next meeting.

The battle against inflation is, however, far from being won as the report from the Commerce Department on Friday showed overall prices were still elevated, partly due to higher gasoline prices.

The imminent US government shutdown that threatens to delay the publication of key economic data will test policymakers' and investors' trust in a range of less-regarded third-party indicators. Yet when any policy missteps could be enough to tip the world's largest economy into recession, the Fed's emphasis on decisions as "data dependent" becomes more precarious.

Americans outside the wealthiest 20% of the country have run out of extra savings and now have less cash on hand than they did when the pandemic began, according to the latest Fed study of household finances.

Annual euro-area core inflation eased to 4.5% in September, marking the slowest pace since August 2020 and supporting expectations that the European Central Bank will keep interest rates on hold to gauge the impact of its unprecedented campaign of hikes.

These readings were likely to strengthen the ECB's conviction that it had raised interest rates far enough to bring down inflation to its 2% target by 2025, after being wrong-footed by a surge that started in 2021.

"Base effects played a key role in explaining the sharp fall in inflation, but the figures also suggest that underlying inflationary pressures are becoming less intense," Diego Iscaro, head of European economics at S&P Global Market Intelligence, said.

"The figures reinforce the view that interest rates have likely reached their peak in the current tightening cycle."

The inflation drop was broad-based, with all price categories growing at a slower pace and energy prices falling outright for a fifth consecutive month.

German companies are thinking twice about hiring staff amid an increasingly uncertain economic environment, according to a study by the Ifo Institute. A gauge measuring firms' willingness to take on employees fell to its lowest level since February 2021.

Inflation in Tokyo slowed more than expected in September, offering support for the Bank of Japan's view that prices are set to cool further, and thus ultra-easy policy needs to stay in place. Behind the steady slowdown is the impact from government subsidies.

Rising debt payments are eroding the spending power of Indian households and threatening to choke off the funds that fuel the fastest-growing major economy. Net financial savings eased to 5.1% of gross domestic product in the fiscal year ended March, which one economist says is the lowest since 2007.

Labour markets in Brazil and Mexico are extending their hot streaks into the third quarter in an unexpected performance that has underpinned the strength of Latin America's two largest economies.

Vietnam's economy accelerated for a second straight quarter on the back of stronger performances by its key growth drivers — manufacturing and exports. The numbers raise hopes that growth could further accelerate amid early signs of China's recovery stabilising.