US inflation showed better than expected numbers

Consumer prices in the US showed better that expected numbers in August, which is to indicate that inflation is getting closer to Federal Reserve’s target.

The consumer price index CPI in the country rose in August by 0.2% on a monthly basis with expectations for an increase of 0.1%, having in mind that in July remained at the level of the previous month, or 0.0%.

Major influence over the stronger than forecast increase in inflation appears to be the sharp increase of 0.9% in prices for medical services.

In August the US inflation accelerated on annual basis in August to 1.1 percent from 0.8 percent in July amid the expectations for an increase of 1%.

At the same time the main CPI index excluding the food and energy prices marked an increase of 0.3% , as on an annual basis rose by 2.3% amid the expectations of keeping the pace of growth from July with 2.2 %.

International US trade deficit shrank by nearly 12%

The international US trade deficit shrank by nearly 12 % in July thanks to rising exports. This is a signal of strengthening global demand for goods and services.

The trade deficit of the world's leading economy fell in July by 11.6% to 39.47 billion dollars from a deficit of 44.66 bln dollars in June, reflecting the large increases in exports and the decrease in imports. The average forecast of the financial markets were for a larger deficit amounting to about 41.1 bln dollars.

Imports fell 0.8% to 225.81 bln dollars, but at the same time, exports rose 1.9% to 186.33 bln dollars. This represents the largest increase in US exports for two and a half years and it is a fact despite the sharp appreciation of the dollar at the end of June and most of July in reaction to the surprising Brexit vote.

China's economy will be the biggest loser by the strong dollar

The strong dollar will inevitably have a negative effect for some countries. The biggest loser, however, will not be American but Chinese economy. The main reason for this is that the yuan was bounded to the US currency to improve their financial stability.
So when the dollar grows versus other currencies, expectations are for a recent increase in interest rates in the United States. The increase, however, applies to the Chinese currency. The problem for Beijing is that the suffering from slowdown second largest economy in the world is twice more dependent on trade than the US.

“It’s a problem,” said Yukon Huang, a senior associate at the Carnegie Endowment for International Peace in Washington and a former World Bank country director for China. “Excessive appreciation at a time when the economy is sinking is a bad thing.”

He and other economists, including former U.S. Treasury Secretary Lawrence Summers, expect China will try to avoid that by allowing the yuan to fall against the dollar. Such a move, though, risks triggering political criticism in the U.S. with a presidential election less than a year away.
“They’re stuck,” Huang said. “If they depreciate the currency, they’ll come under attack.” Yet “they need to do so.”

Republican presidential front-runner Donald Trump has called China the "No. 1 abuser" of the U.S. and has accused it of “wanton manipulation" of its currency.

The U.S. economy certainly has been hurt by the dollar’s advance since mid-2014. (It is up more than 20 percent against a basket of currencies during that time, though only about 3 percent against the yuan.) The stronger greenback has made American companies less competitive in world markets, helping push exports down 4.3 percent through the first 10 months of this year.

But China faces even bigger difficulties from a strengthening currency. Trade amounted to 42 percent of its gross domestic product last year, compared with 23 percent for the U.S.