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Daily Economic Update
10.07.2025Egypt: Inflation below expectations in June. Consumer price inflation eased to 14.9% in June from 16.8% the previous month, the first deceleration in three months and well below the consensus estimate of 16.2%. The core rate also declined, to 11.4% from 13.1% in May. With the exception of housing and utilities, which saw an uptick in June (15.5% from 14.4%), annual inflation broadly eased or remained unchanged in other categories. Inflation decelerated most notably in the food and beverage, clothing and footwear and healthcare categories (46% combined weight), easing by 4.1, 2.1, and 3.3 percentage points respectively, though remained elevated. Also noteworthy is the monthly change in consumer prices, which saw the first decline in thirteen months (-0.2% m/m) on lower food prices (-1.2% m/m). Since the drop to a three-year low of 12.8% in February, inflation has gradually drifted upwards on higher fuel costs and may rise further over coming months on revisions to the VAT law which include higher levies on alcohol and tobacco. The initial consensus market (and our) view was for the central bank to hold interest rates at its decision later today having cut by a cumulative 325 bps across its last two meetings. However, the odds of another rate cut have increased following the latest, lower than expected inflation print.
US: Brazil slapped with a 50% tariff although the US has a trade surplus with the country. Following up on the first batch of tariff letters sent, President Trump sent letters yesterday to an additional eight countries specifying tariff rates, which were broadly similar but on average lower than the original April 2 “reciprocal” tariffs. Except for Brazil and the Philippines, these countries are very small trading partners of the US. Brazil, which is among the top 20 trading partners of the US (accounting for 1.7% of total merchandise trade in the first five months of 2025) was surprisingly slapped with a high tariff of 50% although it has a trade deficit with the US ($3.2 billion in 5M2025) and the original tariff rate imposed on it back in April was the minimum 10%. Trump’s letter to Brazil explicitly mentioned that the trial of a former Brazilian president and the actions of the Brazilian Supreme Court against US social media platforms as reasons for slapping that tariff. This action by the US, of unilaterally imposing tariffs on another country due to political and judicial matters, may be unprecedented, and just like Trump’s other “reciprocal” tariffs, its legality remains in front of the US courts. The letter also stated that the US will start a Section 301 investigation of Brazil (i.e. investigate and maybe address that country’s trade practices), and in addition it included the customary threat that if the country (Brazil) retaliated by increasing their own tariffs, there will be a further and equal increase in US tariffs. The Brazilian president was quick to comment, saying that his country would respond “with reciprocity”. Hence, this matter has a good chance of escalating further in the days to come. It is possible that this US escalation with Brazil could toughen the stance of other countries currently negotiating with the US as it shows that US tariffs are being used, not only to extract economic concessions from other countries, but also non-economic ones. Finally, we note that, with the 9 July date behind us, the US officials involved in trade matters have suffered a big hit to their credibility as even until the recent weeks and days, they were saying that important trade agreements will be concluded before 9 July, but nothing has materialized.
Oil: Prices firm despite bigger OPEC-8 output hike and large US crude stocks buildup. Brent futures hit a two-week high on Wednesday, settling at $70.2/bbl as shipping disruptions in the Red Sea and strong gasoline demand in the US outweighed the effect of a bigger-than-expected OPEC-8 output hike and a surprise US commercial crude inventory buildup. After a relative calm in the Red Sea, Houthi militias restarted attacks on shipping with two ships being severely damaged so far this week, helping raise the geopolitical risk premium embedded in prices. Meanwhile in the US, the EIA’s weekly report gave a mixed signal: strong demand for driving during the week ending July 4 saw gasoline stocks fall by 2.7 mb w/w though commercial crude inventories also rose by 7.1 mb w/w, the largest increase since January 31. Nevertheless, the combined effect saw Brent reclaim the $70/bbl level, trading higher than before OPEC-8’s weekend announcement of a larger-than-expected output hike for August (read more here). Ongoing US trade developments are the market’s main focal point this week, but market participants will also be looking at OPEC’s Annual World Oil Outlook set to be released today and the IEA’s monthly oil report tomorrow.
Japan: Producer price inflation registers a ten-month low in June. Producer prices saw a softer increase in June of 2.9% y/y, down from 4.1% in the previous month and marking the third consecutive month of deceleration. This was mainly driven by falling fuel and metal prices and the strengthening of the yen, which, combined with a 12.3% y/y drop in import prices, relieved some raw material cost pressures. Moreover, inflation in the food & beverages segment remained strong at 4.5% y/y but eased from May’s 4.7%, and suggesting a cooling for consumer prices ahead, which comes in line with the Bank of Japan’s (BoJ) expectation that food price inflation could moderate this year. However, the complex landscape and rising uncertainties that include the looming US tariff threat, a weak economic recovery, and declining real wages may delay further interest rate increases and the market projects no change at the BoJ’s policy meeting at the end of July.