US inflation rises further

This week's most important macro figure came from the United States. Inflation rose in November for the second month in a row. Compared to a year ago, prices went up by 2.7%, compared to 2.6% in October and 2.4% in September. These figures are still above the Federal Reserve's (US central bank) target of 2% inflation.

If we remove the volatile prices of food and energy from the inflation figure - a measure called core inflation - inflation comes out at 3.3%. This has been the same level for three months in a row, and clearly higher than overall inflation.
 
Despite higher inflation, investors expect the Federal Reserve to cut interest rates again on 18 December, at this year's last interest rate meeting. Shortly after the release of the inflation figures, the probability of a rate cut, as estimated by the market, rose to over 96%.

Why is the Federal Reserve cutting interest rates?

The reason for a possible interest rate cut, despite higher inflation, is that the current interest rate is relatively high, thereby slowing economic growth. With the US economy showing signs of cooling, Fed chairman Jerome Powell and his colleagues want to bring interest rates down to a ‘neutral level’. This means interest rates are not too high to limit growth, but also not too low to allow inflation to rise. The risk of another recession plays a role in this.

However, an interest rate cut could rekindle inflation. We also saw this risk reflected in gold prices in recent days, which rose again after a small correction. 
 
Central banks buy more gold

Another reason for the rebound in the gold price is that central banks worldwide bought a lot of gold in October. In fact, they bought more gold in that month than in any other month this year. In particular, central banks of emerging economies - countries where gold reserves are still relatively small - added gold to their reserves. Geopolitical tensions, such as incoming President Trump's new import tariffs and a less positive attitude towards the US dollar, are driving these purchases.

Global debt mountain continues to grow

The Institute of International Finance (IIF) recently reported that global debt has risen to $323 trillion. This represents an increase of $12 trillion in the first three quarters of this year. Despite this increase, total debt as a percentage of gross domestic product (GDP) fell slightly. This is because the global economy itself is also growing, partly due to persistently high inflation.

However, debt as a percentage of GDP remains higher than before the corona pandemic. In many countries, including the US and the Netherlands, inflation is causing GDP to show nominal growth, slightly improving the debt-to-economy ratio. Still, overall debt levels remain a concern globally.
 
Germany: industrial sector under pressure

In Germany, industrial production contracted 1% in October, while economists had expected 1% growth. This contraction was even worse than the most negative forecast. German industry is affected by higher energy prices, strict regulations and increasing competition from China.

Germany's coalition government recently fell over disagreements over the so-called ‘debt brake’ - a rule that restricts the government from taking on debt in order to invest. Some policymakers advocate temporarily releasing this brake to stimulate the economy. Germany, along with the Netherlands, has one of the lowest debt levels in the eurozone. 

The question arises whether this strict fiscal policy is not counterproductive, especially in tough economic times. Especially now that France is under pressure from the financial markets for not having its budget in order. It just goes to show how big the differences are within the different member states. Meanwhile, the euro continues to depreciate steadily.