The European Central Bank has decided to lower the deposit facility rate by 25 basis points to 3.50%. In recent months, a general downward trend in inflation across multiple countries has provided support for central banks to reduce interest rates. Analysts have pointed out that due to the divergence in the pace of inflation decline and economic trends among different economies, the pace of rate cuts is expected to be inconsistent.

Continued Decline in Inflation in Multiple Countries

Data released by the U.S. Department of Labor on the 11th showed that the U.S. Consumer Price Index (CPI) rose by 2.5% year-on-year in August, continuing to narrow compared to July, marking the lowest increase since February 2021, indicating a continuous slowdown in inflation. The U.S. CPI increased by 0.2% month-on-month in August, the same as in July. After excluding the more volatile food and energy prices, the core CPI rose by 0.3% month-on-month in August; it increased by 3.2% year-on-year, the same as in July.

An important reason for the decline in U.S. inflation in August is the continued decrease in gasoline prices. Gasoline prices fell by 0.6% month-on-month and 10.6% year-on-year. In addition, used car prices fell by 1% month-on-month and 10.4% year-on-year.

In the eurozone, preliminary statistical data released by Eurostat showed that due to the decline in energy prices, the inflation rate in August was 2.2% at an annual rate, lower than 2.6% in July, marking the lowest level since July 2021.

Data released by the Federal Statistical Office of Germany on the 10th showed that due to a significant decrease in energy prices, Germany's inflation rate in August fell to 1.9%, lower than 2.3% in July, marking the lowest level since March 2021. The data showed that German energy prices fell by 5.1% year-on-year in August.

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In the first half of this year, the UK's inflation level continued to decline, with both May and June at 2%. In July, the UK CPI rose by 2.2% year-on-year. This was the first increase within the year after the data continued to slow down, but the core inflation and service sector inflation pressures in the UK are both decreasing. The data showed that the core inflation excluding food and energy prices in July was 4.1% year-on-year, lower than 4.2% in June, and service sector inflation also fell from 5.7% in June to 5.2%.

The Bank of Canada announced on the 4th that it would lower the benchmark interest rate by 25 basis points to 4.25%. The Bank of Canada said that the country's economy grew by 2.1% in the second quarter, driven by government spending and business investment, and the inflation rate in July further slowed to 2.5%. High housing prices remain a major factor affecting overall inflation but have begun to slow down.

At the same time, official data showed that South Korea's CPI rose by 2% year-on-year in August, slowing to the lowest level in nearly three and a half years, compared to 2.6% in July. The South Korean government stated that it expects to achieve a 2% inflation target by the end of 2024.

Support for Lowering Interest RatesThe Federal Reserve concluded its two-day monetary policy meeting on July 31st, keeping the target range for the federal funds rate unchanged at 5.25% to 5.5%. The Federal Reserve indicated that if progress continues in the fight against inflation as desired, it may announce a rate cut following the meeting on September 18th.

Carl Weinberg, Chief Economist at High Frequency Economics, stated that the latest inflation report would bolster confidence within the Federal Reserve that inflation is indeed on a sustainable path towards the 2% target level.

Policymakers at the Federal Reserve have hinted that they are increasingly convinced that the inflation rate is steadily falling towards the 2% target, shifting the focus to supporting a gradual cooling of the job market. Consequently, the market widely expects the Federal Reserve to cut rates at the September meeting to stimulate economic growth and employment.

Analysis suggests that inflation in the United States will continue to slow down in the near term. Further declines in energy prices will help bring inflation back down. New York oil prices have retreated from a high of around $80 per barrel last month to around $67 per barrel. London Brent oil prices have also fallen below $70 per barrel for the first time since December 2021.

The annualized wage growth rate in the United States has also slowed to 3.5%, easing inflationary pressures. Two years ago, wage growth in the United States exceeded 5%, forcing businesses to significantly raise prices to cope with higher labor costs.

Affected by factors such as soaring housing prices, the Bank of Korea kept its key interest rate stable at 3.15% for the 13th consecutive time in August, but opened the door for a shift in monetary policy this year. Lee Chang-yong, Governor of the Bank of Korea, said in early September that as South Korea's CPI cools down, it is time to "fully consider" lowering interest rates. Lee Chang-yong stated that the central bank will review the "appropriate timing" for a rate cut, which is his strongest signal so far regarding a shift in monetary policy.

Previously, the Bank of England cut its benchmark interest rate by 25 basis points to 5% at the beginning of August. Market institutions expect that, based on the latest macroeconomic data in the UK, the Bank of England will be more cautious in adjusting monetary policy. Given the wage increase situation of UK employees, the possibility of the Bank of England continuing to cut rates in September is very small.

Data shows that from May to July, excluding bonuses, UK employees' wages rose by 5.1% year-on-year, far higher than the inflation level during the same period. Including bonuses, the wage increase was 4% year-on-year.

However, due to the still-rising inflation level, the Bank of Japan is still considering further rate hikes. Affected by factors such as higher energy costs after the termination of government subsidies, Japan's core CPI rose by 2.7% year-on-year in July, with the increase expanding for the third consecutive month.

The risk of inflation rebound still exists.The U.S. inflation level in August remains higher than the Federal Reserve's long-term inflation target of 2%. Analysis indicates that the persistently high prices in housing and services have led to a slightly higher-than-expected increase in the U.S. core CPI for August. Data shows that the year-on-year increase in rent for August is still as high as 5.2%. The possibility of the Federal Reserve lowering interest rates by 50 basis points in September is decreasing.

Futures market data shows an increase in bets on the Federal Reserve cutting interest rates by 25 basis points at the September interest rate meeting, while bets on a 50 basis point cut have significantly decreased.

Excluding food and energy prices, Germany's core inflation rate for August is 2.8%, which is significantly higher than the overall inflation rate this year. In August, German service prices rose by 3.9% year-on-year, with insurance, social institutions, catering, vehicle maintenance and repair, and other service prices showing a more noticeable increase.

The President of the Federal Statistical Office of Germany, Dr. Georg Thiel, stated that the decline in energy prices in August was more pronounced than in previous months, effectively slowing down inflation; the rise in service prices remains above average and is the main factor driving inflation.

Economists call for not underestimating the challenges faced by European monetary policy, as the service sector's inflation rate remains high. Moreover, considering the current uncertainties in the Middle East, if energy prices rebound, the inflation rate in the Eurozone may also accelerate. (Reporter Wang Jing)