Charting the global economy: Tariffs trickling to US consumers

Underlying US inflation rose by less than expected for a fifth month in June even as the details signaled companies are beginning to more meaningfully pass some tariff-related costs to consumers. The report gave a little bit of everything to Fed policymakers who are divided as to whether tariffs will cause a one-time price shock or something more persistent.

Retail sales rebounded in June in a broad advance, potentially tempering some concerns about a retrenchment in consumer spending. Ten out of 13 categories posted increases, surprisingly fueled by motor vehicle sales, which climbed after back-to-back declines.

President Donald Trump said Wednesday he’s not planning to fire Jerome Powell, and still managed to make it sound like a threat. Trump’s comments capped a hectic few hours that took his pressure campaign against the Fed chief to a new level — and sent markets into a short-lived nosedive.

Asia

China’s humming factories threw a lifeline to an economy struggling with weak demand in the second quarter. That’s also given policymakers space to fight deflation — if they choose to do more than just hitting their growth target. Nominal GDP, which accounts for price changes, rose just 3.9%, the least outside the pandemic since the quarterly data began in 1993.

Australian unemployment unexpectedly climbed to a four-year high in June as hiring almost stalled, suggesting a loosening of the labor market and bolstering the case for the Reserve Bank to reduce interest rates next month. Employment rose by 2,000 driven entirely by part-time roles, against economists’ expectations of a 20,000 gain.

Bank of Japan officials are likely to consider raising at least one of their inflation forecasts at a policy meeting later this month, after rice and food-related prices rose more than expected, according to people familiar with the matter.

Most of China’s industries can’t survive US tariffs at current levels, according to a new analysis by Bloomberg Economics. Tariffs now set at roughly 40% compare with average industrial profit margins of about 14.8% in 2024. That gap could prompt more intense price cuts, weakening profits, and — in the worst case — layoffs and potentially a wave of bankruptcies and closures.

Europe

Fresh jobs data reinforced a picture of a weakening British labor market, with unemployment notching up to the highest level in four years. The jobless rate increased to 4.7% in the three months through May, compared with 4.6% in the previous period. Payrolls are 185,000 down compared to October just before Chancellor of the Exchequer Rachel Reeves announced budget changes that ramped up employment costs for businesses.

Germany’s global export position has deteriorated substantially in recent years, according to research by the Bundesbank, which blames structural issues rather than US tariffs.

UK living standards are no higher than when Labour swept to power a year ago, highlighting the problems piling up for Prime Minister Keir Starmer as he struggles to contain the rise of Nigel Farage’s populist Reform UK party.

Swiss exports to the US rebounded in June, evidence that trade between the two countries remains robust despite the pressure of ongoing tariff negotiations. Switzerland is a major exporter of drugs to the US, with medicines from companies like Roche Holding AG, Novartis AG and Sandoz AG accounting for almost half of Swiss goods shipped to America in 2024.

Emerging Markets

Bond investors worried about rising fiscal deficits are turning to an unusual haven: emerging markets. While long-dated bonds in developed markets have come under pressure this year as investors grow wary about government spending, emerging-market bonds in Asia have become a hot pick.

World

Bank Indonasia lowered interest rates and said it’s prepared to cut further in necessary. Central bankers in Angola left borrowing costs unchanged.