US inflation is still on the right track

This is an audio transcript of the FT News Briefing podcast episode: ‘US inflation is still on the right track’

Sonja Hutson
Good morning from the Financial Times. Today is Friday, August 11th, and this is your FT News Briefing.

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The US and Iran have struck a deal to move American prisoners to house arrest. And US inflation is up just a smidge, but overall, things look good. Plus, Mexico’s military is becoming more and more influential in the country.

Michael Stott
So they’ve got this enormous kind of empire that’s growing almost by the month and controlling more and more money.

Sonja Hutson
I’m Sonja Hutson, in for Marc Filippino, and here’s the news you need to start your day.

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Iran has transferred five US citizens from a notorious prison to house arrest. This is the first step in a deal that Washington hopes will end with the prisoners returning home. In exchange, the US would release $6bn in Iranian oil revenue. It’s currently frozen in South Korea. This breakthrough could help mend the relationship between the US and Iran. It’s been strained ever since former President Donald Trump pulled out of the nuclear accord. Talks to revive the deal started up again this year, and diplomats are hopeful this latest development will create momentum in those talks.

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US inflation went up slightly last month. Government data that came out yesterday showed prices rose by 3.2 per cent in July. That’s up from 3 per cent in June. I’m joined now by the FT’s Kate Duguid. She covers US capital markets. Hi, Kate.

Kate Duguid
Hi.

Sonja Hutson
So inflation was falling and now it’s back up a little bit. What happened?

Kate Duguid
The most important thing to take away from this inflation report is that it was really good, right? It showed a lot of progress on inflation in the US despite this slight tick up in the headline number. There is the headline annual inflation number, which is like what we all pay attention to. When you say 3.2 per cent, that’s that number. There’s also the month over month increase. And then there’s what we call core inflation, which strips out energy, food, some of the more volatile segments of the market. And in every category, except for that headline inflation number, we basically saw progress.

Sonja Hutson
What do you think this means for the Federal Reserve’s next interest rate decision?

Kate Duguid
So what we’ve seen is investors think that this will put the Fed on pause for September. They think that the Fed will not increase interest rates. This suggests that the Fed’s increases, the Fed’s, you know, year and a half of really aggressive interest rate increases, that has been successful at slowing down inflation. You know, it does mean that the Fed is probably not likely to cut interest rates anytime soon, right? There’s still a lot of work to be done on inflation, but they may not need to continue raising interest rates.

Sonja Hutson
So we talked a little bit about investors expectations. How did we see that show up in the market? How are markets reacting to this news?

Kate Duguid
Markets were ebullient, right? Investors really, really, really liked this inflation report. So we did see investors in the futures market take off or they added to bets that the Fed would be on hold in September.

Sonja Hutson
Kate Duguid is a US capital markets correspondent for the FT. Thanks, Kate.

Kate Duguid|
Thank you.

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Sonja Hutson
Mexico has been really bulking up its armed forces. Military spending has steadily increased under President Andrés Manuel López Obrador, and it’s transformed the feel of the country and Mexico’s economy. Here to talk about it, I have the FT’s Latin America editor, Michael Stott. Hi, Michael.

Michael Stott
Hi, Sonja.

Sonja Hutson
Why has AMLO, the president, focused so much on the military?

Michael Stott
Well, it’s interesting. He was not historically someone who was fond of the military. He’s a leftist. And he, at one point, even talked about abolishing the army. But when he got into power, he realised that the army could be very useful in getting his priority projects built quickly with minimal fuss and also cutting through a lot of the legislative and environmental and budgetary restrictions that normally surround government projects. So the military has become a kind of go-to force for AMLO.

Sonja Hutson
How does the public feel about this?

Michael Stott
Well, there’s a lot of Mexicans are concerned about this because this is a country whose military in recent history has been small, quite modest, has stayed out of politics. It didn’t stage coups in the 1970s and 1980s when we had military regimes in Brazil, Argentina and Chile. So there’s a lot of concern now about the military becoming very powerful. And the reason, for example, running the national customs service. They’re running a string of airports. They’re going to run train lines, hotels, nature reserves. So they’ve got this enormous kind of empire that’s growing almost by the month and controlling more and more money. And of course, with that comes the concern that there’s a potential for corruption. And there’s also very little transparency because military budgets are secret. There’s a lot of concern about this in Mexico.

Sonja Hutson
Michael, I also understand from reading the story that you wrote about this, that there is a lot of concern over increased violence because of the stronger military in Mexico, right?

Michael Stott
Yes. So Mexico’s already a very violent country. Under AMLO, the amount of violence has increased still further and his time in power has been the bloodiest term of any president in modern Mexican history. Around 200,000 people have either been murdered or disappeared in his first five years in power, which is an astonishing figure for a country with a population of 130mn. And what he’s done is he’s put the army in charge of that new National Guard force. So he abolished the federal police. He said that the National Guard would be more effective. And that’s led to a lot of concern because the army have not got a great record on human rights. And so far, of course, the violence is really still running at very high levels to date.

Sonja Hutson
So, politically speaking, how is this shaking out for AMLO, who I should mention will reach his term limit next year and have to leave office at that time?

Michael Stott
Well, the army is a popular institution in Mexico. It’s very active after natural disasters helping the population. So its image is a fairly positive one, and it hasn’t had this history of coups. So most Mexicans are proud of the military. But what’s happened is that there’s a lot more concern among the political class, among the opposition, among human rights activists, NGOs, that the military is growing too powerful and that it may be very difficult after López Obrador leaves office to roll back this increased power that the military has got, particularly the economic power, because once generals and admirals get their hands on big budgets and lots of money, then it becomes much more difficult to prise that away from them.

Sonja Hutson
Michael Scott is the FT’s Latin America editor. Thanks, Michael.

Michael Stott
Thank you.

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Sonja Hutson
Before we go, our FT Weekend festival is back on Saturday, September 2nd, in London. Speakers include Michael Gove, Jesse Armstrong, Rachel Reeves and many others. As a Briefing listener, you can claim a special discount. We’ve got that promo code in our show notes.

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The FT News Briefing is produced by Marc Filippino, Fiona Symon and me, Sonja Hutson. Our engineer is Monica Lopez. We had help this week from Josh Gabert-Doyon, Monique Mulima, David da Silva, Michael Lello, Peter Barber and Gavin Kallmann. Our executive producer is Topher Forhecz. Cheryl Brumley is the FT’s global head of audio, and our theme song is by Metaphor Music.