Meanwhile, global inflation accelerated in August, as we touched on last week, showcasing the multifaceted global accelerations and decelerations we’re seeing all around the world’s major economies. Even if the pace of inflation’s acceleration is still relatively mild, it points to diverging trends in expectations between the U.S. and the rest of the world. This divergence has important implications for economic policies and their effects on global markets.
Across the United States, tariff costs are slowly but surely moving through the economy. These costs are beginning to take a toll on all sectors. To date, they still have not made a meaningful dent on final consumer prices. All of this raises the likelihood that tariff pass-through is ongoing, meaning consumers will still feel the impact more severely in the future.
Yet, monetary policy of the US Federal Reserve ‒ the US central bank ‒ has a tremendous impact on global inflation trajectories. Gold prices have taken a hit amid the Fed’s anticipated rate cuts. They are still around their historic maximum of $3,700 per troy ounce (inflation adjusted). A continuously weaker US Dollar and falling US yields keep gold prices elevated. This perfect storm of factors makes for an irresistible environment for investors.
The EUR/USD exchange rate has surged above the 1.1800 value, making waves as it aims for its high from 2025. This movement is indicative of wider economic trends across Europe and the continued recalibration of European monetary policy. GBP/USD exchange rate have skyrocketed to two-month highs. This upswing is powered by positive outcomes from new UK labour market surveys. All of these changes are adding to a positive mood around the British pound.
With global inflation rates increasing, central banks are increasingly trapped between low growth and rising inflation as they navigate complex monetary policies through these abrupt changes. It is still an unfolding story, and each economy has responded in very different ways. The difference in inflation expectations likely would result in very different policy directions, with implications for international trade and investment flows.