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Daily Economic Update
13.08.2025US: Core CPI accelerates, broadly matching expectations. Headline CPI inflation in July held steady at 2.7% y/y but slowed on a monthly basis to 0.2% from 0.3% in June. Softer monthly inflation was helped by a 0.1% drop in grocery bills and a 1.1% decline in energy prices. However, underlying prices rose at a faster pace of 3.1% y/y (from 2.9% in June) and 0.3% m/m (from 0.2%), broadly in line with the consensus, as some services including airfares (+4% m/m) and medical care (+0.8%) saw accelerated price rises. The rise in core services ex housing at 0.5% m/m was the highest since January while shelter inflation was steady at 0.2% m/m (3.7% y/y). Core goods inflation stood at 0.2% m/m (1.2% y/y) with price rises in some goods that saw higher inflation in previous months more modest or reversed, including household furnishing (0.7% m/m versus 1% in June), appliances (-0.9% versus 1.9%), apparel (0.1% versus 0.4%) and toys (0.2% versus 1.8%). However, some other goods recorded sustained/rising price pressures, such as tools and hardware supplies (1.6% m/m), footwear (1.4%) and audio equipment (2.2%). The y/y inflation in core goods has been steadily increasing in the past few months, reaching 1.2% y/y in July, up from -0.1% y/y in March. This higher inflation can also be seen in the prices of durable goods specifically, which are up by 1.2% y/y in July from -1.2% in February. Overall, headline inflation remained contained but tariffs are having an impact below the surface, which is still a developing matter. In addition, given several changes in tariff rates and implementation deadlines, the inflationary effect of tariffs may continue to be volatile over the coming months, and the uncertainty about its lasting impact (one-time versus persistent) is unlikely to be settled anytime soon. Nonetheless, this broadly ‘in line’ inflation report helped ease investor worries, with the S&P 500 posting a new all-time high yesterday, rising 1.1% d/d. After the release, futures markets raised the bets for a 25 bps interest rate cut at the Fed meeting next month to near certainty, with an over 50% chance of a cumulative 75 bps in easing by the end of 2025.
UK: Labor market shows early signs of stabilization despite cooling steadily. UK payrolls (based on employment tax records) fell for a sixth consecutive month in July, by 8K, from a narrower-than-previously-reported drop of 26K in June and are now down by around 164K since July 2024. The hike in employer national insurance contributions (NIC), effective April has hit employment levels in recent months. With the figures still preliminary, the rate of decline in July’s payroll numbers, which is the slowest in six months, suggests that the adverse impact of NIC rises on the labor market may be stabilizing. Nonetheless, the UK economic outlook continues to be uninspiring amid intensifying pressure on the public finances and higher costs and operating environment uncertainty linked to US policy shifts and trade tariffs, implying that any meaningful recovery in employment prospects could still be someway away. The UK unemployment rate, based on figures that are still beset by reliability issues, held steady in April-June at a four-year high of 4.7%, after rising in the previous three rolling 3M periods. However, wage growth was mixed, as total pay rises (including bonuses) slowed to 4.6% y/y in Apr-Jun from 5% in the preceding three months but regular wage gains were unchanged at 5%, matching the consensus forecast. The Bank of England will, nevertheless, be encouraged to see further gains in the labor participation rate, which, at 63.8%, is up to its highest since the pandemic, since this should help restrain further upward pressure on wages. Job vacancies dropped further, to a more-than-four-year low of 718K in May-Jul from 725K in Apr-Jun. We think that this latest batch of figures signaling further cooling in the UK labor market but also nascent stabilization provides something for both hawks and doves on the MPC ahead of its next meeting, after it had narrowly voted (5 to 4) to reduce the bank rate by 25 bps last week. The interest rate outlook was largely unchanged after the release of this latest labor data, with the market continuing to price-in one more rate cut before the end of 2025.
Oil: OPEC raises 2026 oil demand growth estimate. As the oil market adopts a wait-and-see approach ahead of the Trump-Putin meeting on Friday, OPEC, in its closely watched monthly oil market report, kept its 2025 oil demand growth forecast unchanged but raised its estimate for 2026 by 100 kb/d to 1.38 mb/d, citing improved economic readings in the US, Europe, the Middle East, and Africa. On the supply side, non-OPEC+ supply growth for next year was revised down by 100 kb/d to 630 kb/d, mainly due to slower growth in the US, where liquids production growth was downgraded by 80 kb/d to just 130 kb/d as lower oil prices encourage more capital discipline and a pullback in drilling by firms in the US shale patch. The downgrade to the US production outlook now makes Brazil the top contributor to non-OPEC+ growth for next year at 160 kb/d. Meanwhile, OPEC+ production (including Mexico) rose by 335 kb/d m/m to 41.9 mb/d in July, with the increase coming primarily from the OPEC-8 subgroup led by Saudi Arabia (+170 kb/d), the UAE (+109 kb/d), and Russia (+98 kb/d). Of note, however, is that Saudi Arabia continued to report its “supply-to-market” figures for the month, whereas actual production stood at 9.2 mb/d, a decrease of 550 kb/d from June. OPEC-8, in total and using Saudi’s “supply-to-market” figures, raised output in July by 308 kb/d m/m, lower than the pledged 411 kb/d increase as production fell in Iraq (-51 kb/d) and Kazakhstan (-36 kb/d), with the former looking to comply with compensatory cuts while the latter continues to produce above its quota.
Bahrain: GDP growth eases in Q1 2025 to 2.7%. According to preliminary official data, the Bahraini economy grew by 2.7% y/y in Q1 2025, slowing from 3.4% in the previous quarter, but slightly faster than the 2.6% growth recorded in 2024. Non-oil activities, which made up 85% of overall GDP in Q1, grew by 2.2% y/y, well below Q4 2024’s rate of 4.6% (and 3.7% for 2024), weighed down by a contraction in manufacturing output (-0.4% y/y), a stark reversal from the 7.0% y/y expansion logged the previous quarter, and slower growth in the public administration (0.9% from 4.7%) and construction sectors (5.4% from 6.8%). Nevertheless, activity was supported by robust output gains in the financial and insurance services sector (7.5%), the largest contributor to GDP (17.4%), the accommodation and food (10.3%), financial services & insurance (7.5%), and construction (5.4%) sectors. Meanwhile oil activities rose by 5.3%, after three consecutive quarters of contraction, marking the fastest quarterly growth in six years. The Ministry of Finance and National Economy also published foreign direct investment figures (FDI), and these showed the stock of FDI growing by 3.5% y/y to $45.4 billion in Q1. The ministry projects real GDP growth of 2.7% in 2025 overall, driven by a 3.4% increase in non-oil activities across multiple sectors. In 2026, GDP is expected to grow by 3.3%, lifted by a 3.9% projected expansion in non-oil activity, subject to revision due to downside risks from global economic uncertainty and adverse geopolitics.
Saudi Arabia: Real estate prices continued to rise in Q2. The official Saudi real estate price index rose by 3.1% y/y in Q2 25 (after a 4.3% increase in Q1), extending a multi-year sequence of uninterrupted quarterly increases in real estate prices. Gains were driven by the commercial sector, which witnessed the fastest price growth in the history of the index (since 2021) with increases of 11.7% y/y (7.9% q/q). This coincided with the continued strong expansion in business activity and solid growth in commercial license issuance in Q2 (80,000 licenses), mostly for activities in high growth industries supported by ongoing Vision 2030-linked investment and reforms. Meanwhile, in a significant shift from the long-run trend, the residential sector, which has historically been the main source of upward pressure on prices in the real estate market, recorded the steepest quarter-on-quarter decline on record in Q2 (-2.6% q/q; 0.4% y/y). The sector was likely affected by government efforts to boost supply, including the introduction of a vacant property tax and higher fees on white lands, and potential buyers waiting on further interest rate declines. Indeed, new retail residential mortgage financing has been in steep decline in all but one month during the first half of 2025 (-28% m/m in June), though it remains well up on last year.