US inflation edges down as Democrats fret over Biden

Today’s top stories

• UK economic growth in the first quarter was revised up from 0.6 per cent to 0.7 per cent, the fastest growth rate since the end of 2021 and the highest in the G7. The data is welcome news for Prime Minister Rishi Sunak ahead of next week’s general election, although the main beneficiary of the steadily improving picture is likely to be the next government.

• The first round of France’s general election is on Sunday. Far-right leader Jordan Bardella promised a “cultural battle” alongside a demand for an EU rebate, should his RN party come out on top.

• Brussels is preparing for an antitrust investigation into Microsoft’s $13bn investment into OpenAI, after it decided not to proceed with a merger review into the most powerful alliance in the artificial intelligence industry.

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Good evening.

News confirming that US inflation was continuing to slow would normally be a big shot in the arm for a president facing re-election in just a few months, but the good news on easing price pressures has been eclipsed by conversations about Joe Biden’s fitness to take on Donald Trump after last night’s TV debate.

The personal consumption expenditures index, the Federal Reserve’s preferred measure of inflation, dipped from 2.7 per cent to 2.6 per cent, while the “core” figure, which strips out volatile food and fuel prices, fell from 2.8 per cent to 2.6 per cent. The new data adds to evidence that inflation has begun to ease after stagnating for months, keeping the Fed on course for at least one rate cut this year.

The economy is the key battleground ahead of November’s election, but economists and investors are increasingly concerned that neither Biden nor Trump are prepared to be tough enough on issues such as spending.

There has also been criticism from industry that tariff plans from both contenders would push inflation back up. US national editor Edward Luce goes further, arguing Trump’s tariffs proposals would be “disastrous” for America.

The IMF also weighed in yesterday, warning that the US must urgently address its high level of debt. In its annual health check on the economy, the fund said the country’s debt-to-GDP ratio would hit 140 per cent by 2032. It follows a prediction from the Congressional Budget Office, the US fiscal watchdog, that the country’s deficit would probably hit $1.9tn this year, up from its February estimate of $1.5tn.

The economy also remains the top priority for US voters, and on this it appears they trust Trump over Biden by 41 per cent to 37 per cent, according to the latest FT-Michigan Ross poll.

However, as columnist Gillian Tett notes, voters’ preference for Trump comes in spite of evidence highlighting the economy’s improvement under Biden. Data flaws, tribal politics and misinformation account for some of this misperception, but another might be to do with the psychology of inflation, she writes.

Unlike economists’ focus on percentage changes, consumers tend to judge inflation on absolute numbers, such as the sticker price at the petrol pump. And since these remain at historically high levels, an incumbent president gets the blame (and an anti-establishment rival reaps the benefits).

It is unclear whether better messaging on the economy will be enough to turn around Biden’s fortunes and revive his campaign after last night’s setback (and for the moment at least, he has vowed to stay in the race).

But what is clear, says Tett, is that we need to update the famous 1990s mantra that elections rest on “the economy, stupid”. “Today it is economic feelings — not ‘just’ facts — that matter,” she concludes.

Need to know: UK and Europe economy

The number of foreign direct investment projects in the UK has hit a 12-year low. With less than one week to go before Britons head to the polls, here’s our summary of the UK’s economic strengths and weaknesses in charts, from growth to trade to jobs and productivity.

Trade is another big election issue. The British Chambers of Commerce said the new administration should stop “walking on eggshells” around EU ties, but the Labour party has hosed down hopes of radical changes.

Whoever wins next week, millions of UK mortgage holders will be hit by higher interest rates in the next two-and-a-half years as they come off fixed mortgage deals. A typical borrower whose deal expires by the end of 2026 will be £180 a month poorer.

European hotel, restaurant and bar owners are set for a busy summer as millions flock to the Euro 2024 football tournament, Taylor Swift concerts and the Olympics. One group not so excited is central bankers, who think the rush to spend could fuel a surge in prices and undermine their fight against inflation.

Need to know: Global economy

Teenagers in rich countries lack the financial literacy and maths skills needed to prepare them for the digital economy, according to an OECD report. The study highlights a persistent gap between their financial knowledge and the increasingly vast range of products that they are being exposed to online.

Chinese premier Li Qiang has insisted that a recovery in the world’s second-largest economy was on track, as he addressed foreign and local delegates at the World Economic Forum’s ‘Summer Davos’ in Dalian.

Bolivia’s army arrested a general accused of launching a botched coup in which soldiers attempted to storm the national palace.

Need to know: Business

Statkraft, Europe’s largest renewable power producer, is scaling back plans for new wind and solar plants because of lower electricity prices and higher costs, arguing “the market conditions for the entire renewable energy industry have become more challenging”.

Tata Steel, Britain’s biggest steelmaker, threatened to shut its Port Talbot blast furnaces earlier than expected in response to industrial action. Labour has promised to cut a better deal for the industry if it wins next week’s general election but Tata has already rejected a compromise plan.

All of the top US banks came through the annual ritual of Federal Reserve “stress tests”, leaving them theoretically in a strong enough position to weather a sharp economic downturn. The tests are used to calculate the minimum amount of capital, which is used to absorb losses, that banks must hold relative to their assets.

Readers of a certain age may have fond memories of creating cassette mixtapes using TDK’s trusty C60s and C90s. Today, the Japanese group has transformed itself into the power behind the world’s smartphones and is now vying for a piece of the artificial intelligence market.

Read the FT investigation into how a complex money-laundering network is fuelling the fentanyl crisis.

Science round-up

Scientists warned of a rise in heat deaths as large parts of the world struggle with extreme weather in what could be the hottest June to August period on record.

Experiments with climate-fixing technology are a great gamble, writes commentator Anjana Ahuja. There could be unintended consequences, she argues, while the prospect of quick and dirty fixes distract from the job of cutting emissions.

Scientists have made a gene-editing breakthrough with the discovery of a way to programme the recombination and rearrangement of DNA. The “bridge RNA method” could enable more precise modifications of genetic code and has been dubbed a “new mechanism for biological programming”.

Innovation editor John Thornhill highlights the potential of AI in helping detect disease earlier and personalise medical treatment — but only if we feed it more of our health data.

UK science leaders called for bigger capital flows, improved infrastructure and deeper international collaboration from the next government to drive the sector’s growth and unlock its economic potential.

Some good news

Ketamine, used as an anaesthetic but also recreationally by clubbers, has been found to help the side-effects of depression. The drug has been attracting increasing interest from mental health professionals and employers as a therapy for depression that is hard to treat by other means.