Macro
The Fed’s rate hikes are clearly having a significant impact on the US economy and the largest economy is slowing down significantly. This is evidenced by the surprisingly sharp 1.1% drop in December retail sales, while even the November figure was revised downwards.
Industrial production also saw a significant decline, with December’s 0.7% drop the most significant since September 2021. Housing starts and existing home sales also fell a bit, but less than expected.
The only positive aspect of the weakening economy is falling inflation, with producer inflation recording a 0.5% month-on-month decline in December.
ECB chief Christine Lagarde said at the World Economic Forum in Davos, that falling energy prices won’t mean the central bank will change its hawkish policy. “Inflation, by all accounts, however you look at it, is way too high. Our determination at the ECB is to bring it back to 2% in a timely manner, and we are taking all the measures that we have to take in order to do that,” said Lagarde.
Thanks to lower fuel prices, UK inflation fell from 10.7% to 10.5% in December. The labour market remains relatively strong, with the unemployment rate still close to a record low in the three months to November.