Cooling prices could prompt the US to pause interest rate increases. AFP
Cooling prices could prompt the US to pause interest rate increases. AFP
Cooling prices could prompt the US to pause interest rate increases. AFP
Cooling prices could prompt the US to pause interest rate increases. AFP

US inflation at lowest annual level in two years


Kyle Fitzgerald
  • English
  • Arabic

A US inflation metric closely monitored by the Federal Reserve fell last month, offering further evidence of cooling prices.

The personal consumption expenditures, more commonly known as the PCE price index, rose 3 per cent on an annual basis for June, down from 3.8 per cent in May, the Commerce Department reported on Friday. It is the lowest annual level since March 2021.

Month-by-month, PCE increased 0.2 per cent.

Core PCE – which excludes food and energy – rose by 4.1 per cent last month, down from 4.6 per cent in May. It also gained 0.2 per cent on a monthly basis. It also increased 0.2 per cent month-by-month.

The Fed closely monitors PCE inflation for its monetary policy decisions.

Prices for goods slipped 0.1 per cent in June while services rose 0.3 per cent. Food prices fell by 0.1 per cent and energy prices increased 0.6 per cent.

Consumer spending rose 0.4 per cent. Data released by the Labour Department on Thursday showed that consumer spending grew by 1.6 per cent in the second quarter.

Friday's report is the latest sign that prices are continuing to cool since the Fed began raising interest rates last year. The Consumer Price Index (CPI) inflation sits at 3 per cent after a 9.1 per cent peak last summer.

Further signs of deceleration could add to hopes that the Fed will not raise interest rates again this year.

After raising rates by a quarter percentage point on Wednesday, the Fed's chairman Jerome Powell remained coy on if the reserve plans to increase rates further this year, going only so far as to say the central bank would take a data-driven approach “meeting by meeting”.

Mr Powell said he does not expect inflation to fall to the Fed's 2 per cent goal until 2025.

This week's decision brought the Fed's benchmark rate to the target range of 5.25 per cent and 5.5 per cent, its highest level in more than two decades. The central bank hopes raising interest rates will slow economic activity without bringing on a recession, otherwise known as a soft landing.

Still, the labour market remains tight and unemployment remains at a near-historic low, complicating their efforts.

Traders expect the Fed to keep rates steady for the remainder of the year.

White House updates economic forecasts

Updated economic forecasts released by the White House on Friday showed that Consumer Price Index inflation is forecast to end the year at 3.3 per cent, slightly above June's 3 per cent reading.

It is expected to remain above the Fed's 2 per cent target by end of 2024 at 2.5 per cent before a long-run 2.3 per cent rate.

Revised down was the White House's unemployment forecast, reflecting greater confidence that the labour market will remain tight this year. The Office of Management and Budget now expects unemployment to reach 3.8 per cent be end of 2023, as opposed to its March estimate of 4.3 per cent.

The White House expects unemployment to reach 4.4 per cent next year before winding down slightly in 2025.

Meanwhile, real gross domestic product is expected to be at 0.4 per cent in 2023 and 1.8 per cent at the end of 2024.

The 2023 deficit is expected to grow to $1.543 trillion, a $26 billion decrease from its previous estimate. The White House said this was largely due to the Supreme Court's ruling to strike down Mr Biden's student loan forgiveness programme.

Bio:

Favourite Quote: Prophet Mohammad's quotes There is reward for kindness to every living thing and A good man treats women with honour

Favourite Hobby: Serving poor people 

Favourite Book: The Alchemist by Paulo Coelho

Favourite food: Fish and vegetables

Favourite place to visit: London

SPECS
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Ten tax points to be aware of in 2026

1. Domestic VAT refund amendments: request your refund within five years

If a business does not apply for the refund on time, they lose their credit.

2. E-invoicing in the UAE

Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption. 

3. More tax audits

Tax authorities are increasingly using data already available across multiple filings to identify audit risks. 

4. More beneficial VAT and excise tax penalty regime

Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.

5. Greater emphasis on statutory audit

There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.

6. Further transfer pricing enforcement

Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes. 

7. Limited time periods for audits

Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion. 

8. Pillar 2 implementation 

Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.

9. Reduced compliance obligations for imported goods and services

Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations. 

10. Substance and CbC reporting focus

Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity. 

Contributed by Thomas Vanhee and Hend Rashwan, Aurifer

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UK’s AI plan
  • AI ambassadors such as MIT economist Simon Johnson, Monzo cofounder Tom Blomfield and Google DeepMind’s Raia Hadsell
  • £10bn AI growth zone in South Wales to create 5,000 jobs
  • £100m of government support for startups building AI hardware products
  • £250m to train new AI models
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COMPANY PROFILE
Name: HyperSpace
 
Started: 2020
 
Founders: Alexander Heller, Rama Allen and Desi Gonzalez
 
Based: Dubai, UAE
 
Sector: Entertainment 
 
Number of staff: 210 
 
Investment raised: $75 million from investors including Galaxy Interactive, Riyadh Season, Sega Ventures and Apis Venture Partners
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Desert Warrior

Starring: Anthony Mackie, Aiysha Hart, Ben Kingsley

Director: Rupert Wyatt

Rating: 3/5

England squads for Test and T20 series against New Zealand

Test squad: Joe Root (capt), Jofra Archer, Stuart Broad, Rory Burns, Jos Buttler, Zak Crawley, Sam Curran, Joe Denly, Jack Leach, Saqib Mahmood, Matthew Parkinson, Ollie Pope, Dominic Sibley, Ben Stokes, Chris Woakes

T20 squad: Eoin Morgan (capt), Jonny Bairstow, Tom Banton, Sam Billings, Pat Brown, Sam Curran, Tom Curran, Joe Denly, Lewis Gregory, Chris Jordan, Saqib Mahmood, Dawid Malan, Matt Parkinson, Adil Rashid, James Vince

The specs

Engine: 2.0-litre 4cyl turbo

Power: 261hp at 5,500rpm

Torque: 405Nm at 1,750-3,500rpm

Transmission: 9-speed auto

Fuel consumption: 6.9L/100km

On sale: Now

Price: From Dh117,059

Updated: July 28, 2023, 7:07 PM