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Daily Economic Update
12.01.2025Egypt: Inflation falls to a two-year low. Headline inflation fell to a two-year low of 24.1% y/y (0.2% m/m) in December from 25.5% (0.5% m/m) in November, helped by a monthly decline in food & beverage prices (-1.5% m/m). Core inflation in December (23.2% y/y; 0.9% m/m) was only slightly down on November (23.7% y/y). The readings were in line with our expectations of sub-25% inflation by year-end (CY2024 averaging at 28%). We expect inflation to average around 15% in 2025, assuming a continued increase in energy prices and a weaker currency. We reiterate our view that, starting February 2025, headline inflation will fall sharply to 13-14% on the back of a favorable base effect. Coupled with recent, muted monthly inflation levels, this should provide the Central Bank of Egypt with sufficient cause to start cutting interest rates at its next meeting, from the current high level of 27.75% (mid-point).
US: Job gains surprisingly accelerate and the unemployment rate drops in December. In yet another sign of a robust US job market, non-farm payroll gains surged to a nine-month high of 256K in December from 212K in November, easily exceeding the market forecast of a 160K increase. Also, the unemployment rate fell, to 4.1% from 4.2%, with a steady participation rate of 62.5%. Wage growth, however, moderated in December to 3.9% y/y (0.3% m/m) from 4% (0.4% m/m) the previous month. On average, the US economy added 186K new monthly jobs in 2024, down from 251K in 2023 but higher than 166K in 2019, suggesting that despite gradually softening, overall labor market conditions remain strong. Meanwhile, consumers’ next-year inflation expectations, according to the University of Michigan’s survey, rose to an eight-month high of 3.3% in January from 2.8% in December, with long-term inflation expectations also soaring to 3.3%, the highest since June 2008, which reflect concerns about potential higher import tariffs under the incoming Trump administration. Overall, the consumer sentiment index was relatively stable at 73.2 from December’s 74. The blowout jobs report and higher inflation expectations will further cement the Fed’s cautious outlook for interest rate cuts this year following a cumulative policy rate reduction of 100 bps since last September. The US bond and equity markets also reacted sharply on Friday following these data releases, with the UST 10Y yield spiking 7 bps to close at 4.76% (the highest since November 2023), the S&P 500 dropping 1.5% d/d, and the dollar index (DXY) jumping to an over-two-year high of 109.6.
Eurozone: Retail sales disappoint November, rising less than expected. Retail sales growth for November came in weaker than expected, at 0.1% m/m (1.2% y/y), according to Eurostat figures. While an improvement on October’s decline of 0.3% m/m (2.1% y/y), markets were expecting an increase of 0.4%, and November’s figures suggest that household spending and consumer confidence remained subdued at the tail of 2024 despite lower inflation and interest rates. Driving the moderate sales rebound were increases in the food, drinks & tobacco (0.1%) and automotive fuel in specialized stores (0.8%) categories, while non-food products (except automotive fuel) declined by 0.6%.
Japan: Household spending continues to decline in November. Real consumption expenditure per household continued to fall for the fourth straight month in November, though at a slower pace of -0.4% y/y compared with October’s reading of -1.3%. The fall was driven mainly by weak spending on furniture and household goods (-13.8%), clothing and footwear (-13.7%), “fuel, light & water charges” (-2.9%), and food (-0.6%), though spending rebounded on housing (18.7%) and education (31.9%). The recovery in consumption, however, remains soft, weighed down by higher prices, the continued decline in inflation-adjusted wages and the depreciation in the yen against the US dollar (currently at JPY157.7/$), which has complicated the Bank of Japan’s rate-hiking plans ahead of its policy meeting next week.