In January 2024, the Euro Area saw a slight dip in its inflation rate, settling at 2.8%, a marginal decrease from December’s 2.9%. This figure still surpasses the European Central Bank’s target of 2.0%. The core inflation rate, which excludes the unpredictable food and energy prices, has been on a downward trend for six consecutive months, dropping to 3.3% – a low not seen since March 2022.
In January 2024, the US saw a significant shift in its economic landscape. Core consumer prices (CCP), excluding volatile items such as food and energy, rose by 0.4% from the previous month, marking the sharpest increase since April 2023 and surpassing market expectations of a 0.3% rise. This acceleration, up from the 0.3% increase in the earlier period, challenged the gradual trend of disinflation in the US economy and bolstered the stance of hawks in the FOMC.
In January 2024, the Federal Reserve decided to maintain the Fed funds rate at a 23-year peak of 5.25%-5.5% for the fourth time in a row, which was consistent with market predictions. This is a mild signal that is done raising rates, but a cutting phase is not ready. Recent data points to a steady growth in economic activities. Although job growth has slowed down since the beginning of the previous year, it continues to be robust, and the unemployment rate has stayed low.
During its inaugural gathering of 2024, the European Central Bank (ECB) decided to maintain its record-high interest rates, as it was expected. The bank committed to keeping these rates at levels that are adequately stringent until inflation returns to its 2% objective promptly. During the press conference that follows the press release, President Lagarde said “We are determined to ensure that inflation returns to our 2% target in the near future. We will continue to follow a data-dependent approach”.
In December 2023, the annual inflation rate in the Euro Area rose to 2.9%, a jump from the 2.4% recorded in November 2023. When examining the primary components of inflation in the Euro Area, food, alcohol & tobacco experienced the highest annual rate in December at 6.1%, a slight decrease from 6.9% in November. This was followed by services at a steady 4.0%, non-energy industrial goods at 2.5% (down from 2.9% in November), and energy at -6.7%, an improvement from -11.5% in November.
The US core consumer prices, excluding volatile elements like food and energy, exhibited a 0.3% month-on-month increase in December 2023, aligning with both the November figures and market expectations. This stable trajectory reflects the resilience of the economy. Over the years, the Core Inflation Rate MoM in the United States has averaged 0.30 percent, with the highest recorded at 1.42 percent in March 1980 and the lowest at -0.49 percent in April 2020.
In Q3 2023, the US economy demonstrated considerable resilience, registering an annualized growth rate of 4.9%. Although marginally lower than the previously reported 5.2%, this figure is in line with the initial advance estimate and marks the most substantial growth since Q4 2021 (previous growth rate: 2.1%).
In December 2023, the Federal Reserve held the fed funds rate at 5.25%-5.5% for the third time in a row, hinting at a 75-basis points reduction in 2024. Despite a slowdown in economic growth and a moderation in job gains, the unemployment rate has remained very contained.
On the other hand, the European Central Bank kept interest rates at multi-year highs for the second meeting in a row on Thursday, despite signs of slowing economic growth.
In November 2023, the US economy saw an increase of 199,000 jobs, which was a significant improvement from the 150,000 jobs added in October and surpassed the anticipated market forecast of 180,000. However, this was the second month in a row where the number of jobs added fell short of the yearly average monthly increase of 240,000, indicating a potential deceleration in the job market.
In the third quarter of 2023, the US economy saw a robust annualized growth of 5.2%. This surpassed market predictions of 5% and showed a considerable increase from the 2.1% growth in Q2. This is the most vigorous expansion since the last quarter of 2021. The nonresidential investment was adjusted upwards to a 1.3% increase, contrary to the initial 0.1% decrease. This was due to a less severe decline in equipment (-3.5% vs the initial -3.8%) and a significant 6.9% surge in structures, compared to the initial 1.6%.
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