Japan’s exports have fallen for the first time in eight months along with imports, reflecting the impact of sweeping US tariffs.
The country’s exports dropped by 1.7% year on year to a four-month low in May, following a 2% gain in April, and marking the first decline since September. Imports slumped by 7.7% to a three-month low, the biggest drop since the start of last year.
Japan’s Nikkei shrugged off the news to rise by 0.8% while several other Asian stock markets were in the red – Hong Kong’s Hang Seng fell by 1.2% and the Singapore exchange lost 0.4%. The South Korean Kospi rose by 0.5% and Chinese indices rose slightly.
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Inflation in the UK is forecast to have dipped to an annual rate of 3.4% in May from 3.5% in April.
The official figures are released at 7am. This month is trickier than usual: the Office for National Statistics has admitted that April’s inflation data was wrong because of faulty data from the Department of Transport. This means statisticians overestimated the impact from a rise in vehicle excise duty, and the headline inflation rate should have been 3.4%.
However it would be a surprise if the ONS changed the April figure; it said that it wouldn’t revise it, “in line with existing policy” – but with May’s data calculated from the corrected base.
The core rate in the consumer prices index, which strips out volatile energy and food costs, is expected to have slowed to an annual rate of 3.5% from 3.8%, according to forecasts compiled by Reuters.
The main inflation rate rose sharply to 3.5% in April from 2.6% in March, mainly due to sharp increases in water charges, gas and electricity tariffs. There was also a 27.5% monthly spike in air fares, resulting in a yearly increase of 16.2%, partly due to the time of Easter holidays. This effect will have unwound in May.
Philip Shaw, chief economist at Investec, who is predicting a May inflation rate of 3.3%, said:
Given that underlying pressure on air fares currently appears to be downwards, our forecast is that airfares will have subtracted some 0.2% from CPI inflation. Lower petrol prices should also have helped to push inflation down. In addition, we are pencilling in some modest downward effects from rental prices which have been on a moderating trend since February.
On the upside, it seems likely that there will be a rebound in annual increases in areas such as clothing and furniture, both of which were subdued in April. We also expect some rise in food price inflation, against the grain of food price disinflation elsewhere in Europe, partly as retailers continued to pass through some higher costs from increases in employer national insurance contributions and a rise in the National Living Wage.
What is the outlook for inflation, and what does it mean for interest rates?Shaw said:
On our profile, inflation remains broadly flat over the next few months and there is a good chance that April’s reading represents this year’s peak. By contrast the monetary policy committee [MPC] expects a high of 3.7% in September. Were our forecast to play out, we suspect the MPC would become relatively relaxed over inflation in the summer, enabling it to bring rates down again in August.
Donald Trump is threatening to keep 25% tariffs on some or all of its steel imports from the UK unless it gives specific guarantees over the Indian-owned steelmaking plant at Port Talbot in south Wales, sources have told the Guardian.
An agreement to reduce tariffs on UK car exports to the US and scrap them for the aerospace sector wassigned off by the US president and Keir Starmer on Monday, on the sidelines of the G7 summit in Canada.
Later today, the US Federal Reserve’s open market committee holds its policy meeting and announces its decision at 7pm BST.America’s central bank is expected to keep interest rates unchanged at 4.5%.Fed chairJerome Powellwill explain the thinking behind the decision at a press conference half an hour later.
Markets have been jittery, with oil prices rising in recent days amid the conflict between Israel and Iran, following Israel’s attack on nuclear and military sites in Iran last Friday.
The Agenda
G-7 leaders meeting day 2
9.30am BST: UK house prices and rents
10am BST: Eurozone inflation (final) for May
1.30pm BST: US Housing starts for May and initial jobless claims
7pm BST: US Federal Reserve interest rate decision (no change expected)