This is an audio transcript of the FT News Briefing podcast episode: ‘US inflation hits lowest rate in three years’
Sonja Hutson
Good morning from the Financial Times. Today is Thursday, August 15th, and this is your FT News Briefing.
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US inflation is cooling off and peace talks to end the war in Gaza will start again today. Plus, Ukraine has shocked the world with its push into Russia. But can it hold on? I’m Sonja Hutson and here’s the news you need to start your day.
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The US CIA director and his Israeli counterpart are sitting down in Doha today to negotiate a ceasefire in Gaza. It’s the seventh time they’ve met since December. But this time there’s even more urgency because people are anticipating an Iranian attack on Israel. It would be in retaliation for back-to-back assassinations of two militant leaders from Hamas and Hizbollah. The US thinks that a cease fire in Gaza is the most realistic way to avoid a wider regional conflict.
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The consumer price index for July came out yesterday. Overall inflation is now down to 2.9 per cent. So get that champagne on ice. The latest figure is giving a lot of people hope that the Federal Reserve will cut interest rates when it meets next month. Here to walk me through the report is the FT’s Colby Smith. She covers the Fed. Hey, Colby.
Colby Smith
Hi, Sonja.
Sonja Hutson
So, 2.9 per cent. That’s lower than what a lot of economists were expecting.
Colby Smith
Yeah, it is. It’s slightly below the 3 per cent figure that economists had expected. But importantly, people say this is kind of a big psychological moment to see that inflation is really kind of breaking in the direction that the Fed wanted to see it go. And now we have an inflation figure that is the lowest since March 2021.
Sonja Hutson
OK. Well, to what extent then does this build the case that the Fed will indeed cut interest rates when it meets next month?
Colby Smith
So I think this is exactly what the Fed wanted to see to a certain extent. Officials have long been saying, you know, we need to see more good data. And they’ve been a little bit unclear about what exactly that means. Does that mean, you know, an improvement in the inflation figures? Does it mean more of the same? And I think the sense that we’re getting is just additional evidence that the disinflation process is continuing apace. And this report certainly fits the bill.
Sonja Hutson
Can you unpack some of the components from yesterday’s report? What areas are showing progress and where are prices still pretty stubborn?
Colby Smith
I think that the biggest component here that we need to pay attention to is housing-related expenses. So this is kind of represented in what’s called the shelter index. So these kinds of costs they’ve been a pretty big driver of inflation. Now in terms of things that we’re kind of keeping a lid on overall inflation. You had the energy index unchanged for the month. Costs for airfares, apparel, used vehicles — those all declined in July as well. So it’s really helping to kind of offset any other increases you’re seeing in other categories.
Sonja Hutson
So Colby, it’s been kind of a wild few weeks in markets after the July jobs report created all of these fears that maybe the Fed had waited too long to cut interest rates. How does this CPI report fit into those fears?
Colby Smith
So I think it definitely gives people some hope that the Fed is really nearing its decision to cut interest rates. But I actually think the more important data point here is gonna come from the labour market. It seems like Fed officials are kind of shifting their focus from fears about inflation to fears about a labour market contraction. We’re seeing just a greater emphasis on whether or not companies are starting to pull back more aggressively on hiring plans, or even in worst-case scenarios, considering lay-offs. And that’s really gonna be kind of key, I think, to answering the question of whether or not the Fed was too late here in adjusting its policy settings.
Sonja Hutson
Colby Smith is the US economics editor for the FT. Thanks, Colby.
Colby Smith
Thank you.
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Sonja Hutson
Germany’s chief prosecutor has issued an arrest warrant for the man suspected of blowing up the Nord Stream pipelines. Now, quick recap for you. The pipelines connect Russia to Germany under the Baltic Sea, and they used to carry natural gas meant for western Europe. That is until Russia launched its full-scale invasion of Ukraine and cut off most of the flow. Then two years ago, explosions destroyed the pipelines. But it was all a bit of a mystery who did it? Investigators now believe the culprit is a Ukrainian man who was living in Poland. He’s since gone on the run. The man worked for a diving school that’s run by a couple from Kyiv. They’re also suspected of being involved in the explosions.
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Ukraine is stepping up its attacks inside Russia. Kyiv claims to control roughly 1,000 sq km in the country. Now, this is a new phase of the war. When the incursion started last week, it was the first time Kyiv had taken territory inside Russia. As Ukraine doubles down on its efforts, what are the risks for either side? I’ve got the FT’s Chris Miller on the line to answer that question. Hi, Chris.
Christopher Miller
Hi. Good to be back.
Sonja Hutson
So we spoke last week, just a few days after this surprise incursion started. Where do things stand now?
Christopher Miller
Yeah. So we’re entering the second week of this incursion into Kursk region in Russia. Their advances have slowed down. So that tells me they’re meeting some resistance. And Wednesday there was a large drone attack by Ukraine against Russian airfields inside of Kursk region and other regions of Russia. So it’s still a very dynamic situation. President Zelenskyy did say this week that he would consider setting up a temporary establishment of military commandant’s offices. So that, to me, says that Ukraine is not going to be pulling out its forces from Kursk anytime soon, which means that I think this battle is likely to continue.
Sonja Hutson
Well, so if Ukraine does end up staying there for longer, what does that mean for its war effort overall?
Christopher Miller
Well, Ukraine has already been facing shortages in ammunition and manpower. So moving into Kursk region is going to stretch it even thinner. They’re taking forces from other places where they were already struggling to beat back Russian advances on the battlefield and move them to Kursk region. And one of the reasons that Kyiv launched this operation in the first place was to try to force Russia to divert resources from the front line in eastern Ukraine up to Kursk. But largely the front line has remained the same as it was, meaning a slow but steady advance of Russian forces that are kind of chipping away at Ukraine’s defences there. One senior official a couple of weeks ago — who I met with here in Kyiv before the incursion started — had already said that cracks were starting to form in that front line. Well, now those cracks are going to be even more exposed because the soldiers that had been defending them are now fighting up in Kursk.
Sonja Hutson
Yeah. So what about risks for Russia? How significant is it for Moscow to lose this territory, given that, you know, they still hold a ton of Ukrainian territory that we’ve been talking about?
Christopher Miller
You know, it’s been really interesting to watch the Russian response because, well, this is the first land incursion into Russia in 81 years. They’re trying to really play it down so as not to cause panic in Russia, and also to appear as though they are not so embarrassed about what they just allowed to happen. And they certainly don’t want to show or let the world see that their borders are not defended.
Sonja Hutson
Given the progress that Ukraine’s been able to make in that regard, do you think that Kyiv and Moscow are any closer at all to negotiating an end to the war?
Christopher Miller
The short answer is no. And I say that because we heard Vladimir Putin during this incursion, say that this will not bring negotiations any closer. However, there have been signals in recent weeks and months that each side is interested in at least starting negotiations. But both sides are very far apart. I’m not confident that we’re going to see any long-lasting peace agreement in the near future.
Sonja Hutson
Chris Miller covers the war in Ukraine for the FT. Thanks, Chris.
Christopher Miller
Yeah. Thank you.
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Sonja Hutson
Before we go, Stonehenge in southern England is famously mysterious. No one really knows how the 5,000-year-old monument was created. But scientists just discovered something major about the so-called altar stone. It’s one of the ones in the middle. And it came all the way from north-east Scotland. That’s more than 400 miles away. And that stone, by the way, weighs about six tons. Researchers used to think that it was transported from Wales. But scientists are still scratching their heads over exactly how and why ancient humans brought the altar stone so far.
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You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news.
