Episode Details

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Kia ora.

Welcome to Thursday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the international edition from interest.co.nz.

Today we lead with news the pressure is off the US Fed from inflation threats, temporarily at least.

First today, and as markets had expected, US CPI inflation came in at 3.4% in July, dipping from 3.5% in June. Food prices were up +3.0% from a year ago, petrol prices up more than +24%. From June petrol prices fell -2.9% however, which was a bit more than expected. (In August, petrol prices dipped slightly in the first week, but have since started rising again.) Rents were up +3.2%. Electricity prices were up +4.2%.

US core inflation - without food and energy - was up +2.5% and this is probably the Fed's get-out-of-jail card. US PCE July inflation data is next due August 27.

US mortgage applications recovered notably last week, up +3.6% from the prior week after four of the prior six weeks were decreases. The rise was driven by refinance activity, borrowers who could not wait any longer and taking advantage of a very minor dip in mortgage rates to 6.77% (which will seem high to our readers).

Last week, the US reported a huge surge in crude oil stocks, the larges weekly rise in more than three years. It wasn't expected - in fact another retreat was expected. It is not clear why, because it wasn't driven by imports, according to this data. Strategic reserves will next be reported at month-end.

The August USDA WASDE report has raised its estimates for beef imports in 2026 and 2027, and lowered its expected milk prices marginally.

The US Treasury reported a much larger budget deficit for July than expected, and the expected July deficit was outsized to start with. They ended up with almost a -US$½ tln deficit in the month alone. The public mismanagement is now epic. For their fiscal year to September, they will be reporting a deficit of at least US$2 tln (-US$1.95 tln over the past 12 months), easily a new record. Trump's swamp creatures are helping themselves.

Meanwhile, a well-supported UST 10yr auction delivered a yield of 4.63% today (high ofg 4.68%), compared to 4.53% at the prior equivalent event a month ago.

Canadian building consents jumped notably in June, up +18% from the same month a year ago driven by non-residential construction. Residential construction rose too, just not as sharply as the commercial sector.

In Japan, the