AI chip shortage and energy costs boost UK inflation
UK consumer prices are set to dominate the news cycle in the upcoming week, as an AI-driven memory-chip shortage coupled with rising energy costs maintains the Bank of England’s vigilance. Data on Wednesday are expected to reveal an uptick in inflation for the first time in four months, with the median estimate from economists forecasting a 2.9% increase in July. The Iran war is increasing the cost of air travel and impacting household energy expenses, while a shortage of components related to artificial intelligence is leading to higher prices for electronics. It marks the beginning of a lift-off anticipated to persist throughout the latter half, truncating a period of favourable developments regarding price pressures. The figures may leave BOE rate-setters increasingly uneasy as the conflict in Iran begins to manifest more distinctly in prices — particularly in light of a resilient economy. One of three dissenters at the BOE’s last meeting, Chief Economist Huw Pill reaffirmed his stance for tighter rates following the unexpected growth of the UK economy in June, which was bolstered by a heat wave and the World Cup. Much of the inflation outlook hinges on developments in West Asia, while AI is positioning itself as a potential dark horse.
The BOE has cautioned that the swift growth of AI capabilities is contributing to an increase in the cost of memory chips utilised in smartphones, laptops, and gaming consoles. Concurrently, the British Retail Consortium’s data from July indicates that the escalating chip prices are being reflected in the prices of electronics. Apple laptops and tablets, along with Xbox gaming consoles, are poised to experience price increases, indicating that AI-related pressures may soon influence core goods inflation in the months ahead. Policymakers will receive an updated assessment of the UK jobs market on Thursday. Wage growth excluding bonuses is anticipated to remain at 3.4 percent for the three months ending in June, while the unemployment rate is expected to decrease slightly to 4.8 percent. This would build on evidence that the UK’s labour market is finally entering a period of stability. For rate-setters, the significant challenge will be the 2027 wage settlements, with indications of those beginning to surface later this year. In other regions, preliminary data for purchasing managers and interest rate decisions from Indonesia, Sweden, and Uruguay will stand out as significant events.
United States and Canada
In the wake of significant inflation indicators from the world’s largest economy, the US data calendar is set to become less congested. On Wednesday, the Federal Reserve will publish the minutes from its late-July meeting, during which policymakers reached a decision with a 9-3 vote to maintain the current interest rates. The summary may provide investors with a clearer understanding of the extent to which officials were becoming increasingly impatient with elevated inflation levels. Government data on Tuesday is anticipated to reveal a decrease in new home construction for July. Housing starts experienced a notable increase the previous month, driven by a significant rise in the construction of multifamily projects. Groundbreaking on single-family properties, however, remains subdued as builders aim to reduce inventory in a market affected by elevated mortgage rates and prices. Monday’s report from the National Association of Home Builders indicates that builder confidence continues to be notably low. A pair of manufacturing reports may indicate yet another month of robust activity, however. Economists anticipate that the Fed’s industrial production report on Tuesday will indicate an increase in factory output for July. At the conclusion of the week, S&P Global is set to release its preliminary factory PMI for August, which is anticipated to remain solidly within the expansion zone.
In Canada, attention is focused on the vigorous trade negotiations currently in progress, aimed at circumventing the impending implementation of Donald Trump’s new 50 per cent tariffs, set to take effect on Wednesday. The two sides have been engaged in discussions regarding the framework of a deal aimed at rolling back existing measures, alongside the US president’s potential decision to eliminate the new tariffs. However, the circumstances appear precarious, and Canadian authorities have cautioned against a potential new cycle of escalation should Trump proceed with the proposed tariffs. Meanwhile, Canada’s July inflation print is set to be released on Monday, with analysts anticipating an increase in the headline figure attributed to elevated energy prices.
Asia
A new chief of Indonesia’s central bank will preside over her inaugural policy meeting in Jakarta next week. Bank Indonesia is anticipated to maintain its benchmark rate at 5.75% on Wednesday, with Destry Damayanti at the helm as acting governor following Perry Warjiyo’s unexpected resignation shortly after the last meeting. Destry’s appointment as governor may receive formal approval from parliament prior to the gathering. Regardless, investors will closely examine her performance for insights into her potential alignment with government policy or her emphasis on independence. Elsewhere on the policy front, China is expected to maintain its 1-year and 5-year loan prime rates at 3% and 3.50%, respectively, the following day. Several significant data releases are scheduled for Monday. Japan’s economic growth is projected to accelerate on an annualised quarter-on-quarter basis to 2 per cent, driven by a resurgence in domestic demand — a development that would position the Bank of Japan to raise rates as early as next month. The same day, Thailand’s GDP growth for the same period may have held steady at 2.8%, according to source.
In the interim, China’s monthly data release is anticipated to present a blend of indicators for July. Retail sales growth is projected to accelerate to 1.5% year on year, whereas industrial output is expected to decelerate to 4.9%. Declines in year-to-date property and fixed assets investment are anticipated to deepen slightly. Malaysia’s consumer price index is expected to remain stable with a 1.9% increase in July, as inflation reports are anticipated later this week from Japan and Hong Kong. On Friday, manufacturing PMI gauges from Japan, Australia, and India are set to be released, with expectations that all three will remain firmly within expansionary territory. Australia also releases two sets of labour statistics. The wage price index is anticipated to remain stable in the second quarter, with an increase of 0.8% compared to the previous period. The employment change and unemployment rate for July are scheduled for release on Thursday. Trade statistics are scheduled for release this week from Japan, New Zealand, and Malaysia.
Europe, Western Asia, Africa
Europe is slowly returning from its summer vacation schedule. Germany’s ZEW indicator on Tuesday is likely to indicate another increase, while the flash PMIs for the eurozone on Friday are expected to remain in the growth zone. The European Central Bank’s monthly survey of consumers’ inflation expectations is scheduled for release at the end of the week. ECB policymakers are beginning to reappear. Chief Economist Philip Lane is scheduled to speak in Dublin on Monday and Tuesday, followed by President Christine Lagarde’s attendance at a World Economic Forum event in Geneva later in the week. Given that Lagarde has frequently been associated with the prospect of leading the WEF and has recently made only ambiguous statements regarding her future, the panel discussion on the global economic outlook scheduled for Wednesday will attract significant scrutiny. Further south, Nigerian data on Monday is likely to indicate that annual inflation increased to 16 per cent in July from 15.9 per cent, influenced by ongoing pressures in food and hospitality prices. On Wednesday, it is anticipated that inflation in South Africa will have decreased to 4.5 per cent in July, down from 5 per cent in the previous month, as the rise in food prices has moderated, counterbalancing the increase in utility costs. Forward-rate agreements, utilised for speculation on borrowing costs, indicate a 72 per cent probability of a quarter-point interest rate increase at the central bank’s policy meeting on Sept. 23.
Three rate decisions are on the agenda in the region:
- On Wednesday, Iceland’s Sedlabanki is anticipated to increase borrowing costs by a quarter point, bringing the rate to 8 per cent, in an effort to address ongoing price pressures.
- A day later, Sweden’s Riksbank is anticipated to maintain its stance at 1.75 per cent, as core inflation continues to trend below the central bank’s target.
- On Thursday, it is anticipated that policymakers in Egypt will exercise caution following the acceleration of inflation for the first time since March, marking a disruption in the disinflationary trend that had been evident for a significant portion of the ongoing US-Iran war. The central bank has halted its easing cycle following the onset of the conflict and is expected to maintain its benchmark rate at 19 per cent.
Latin America
Preliminary estimates for Brazil’s GDP-proxy report on Monday indicate a slight decline in activity in June compared to May. Analysts anticipating a slowdown for the second consecutive year in 2026, with an expected growth rate of 2 percent, followed by a further cooling in 2027. In Chile, stronger-than-anticipated activity in June indicates that the economy experienced a modest expansion in the second quarter, thereby narrowly avoiding a technical recession. For 2026 as a whole, elevated unemployment and a slump in investment have local economists forecasting a second year of slower growth. In Mexico, the minutes from Banxico’s meeting on August 6, during which policymakers maintained the key rate at 6.5 percent for a second consecutive meeting, represent the most notable development. Observers of Mexico’s economic landscape anticipate that policymakers will reaffirm the conclusion of the rate-cutting cycle. However, should inflation align with Banxico’s projections, certain analysts perceive a possible opportunity for easing in 2027.
Colombia is set to release its second-quarter output data alongside the economic activity figures for June. Following a lacklustre conclusion to 2025 and a slow beginning to 2026, robust domestic demand has propelled the economy to operate above its potential. New President Abelardo de la Espriella, elected in part on an ambitious pro-growth agenda, took office just days before a 7.4-magnitude earthquake struck western Colombia, resulting in over 280 fatalities and casting uncertainty over the near-term economic outlook. Argentina’s GDP-proxy data for June are expected to indicate that South America’s second-largest economy has recovered from a two-month decline — although it is unlikely to achieve a positive quarter-on-quarter output result to conclude the first half. Economists have revised their 2026 GDP forecast down to 2.7 percent from the previous estimate of 3.3 percent in March, and have adjusted the projection for next year to 3 percent from March’s estimate of 3.1 percent.
