US inflation heats up

Luke Wilson (0:00)

Gas prices drive US inflation even higher. It's World Business Express from the BBC World Service. I'm Luke Wilson. AI and electric cars give China's exports a welcome boost, and US exports to Cuba hit record levels, even in the face of tougher sanctions.

Data out in the last couple of hours shows US inflation, and how fast prices are rising has hit its highest level in five months, driven largely by rising gas prices. The BBC's North America business correspondent, Michelle Floury, is in New York.

Michelle Fleury (0:39)

The consumer price index rose 3.7% in the last year to September, according to the Bureau of Labour Statistics. The figures may add to concerns at the Federal Reserve that inflation remains above target, keeping it under pressure to raise interest rates again.

It's also the final inflation report before the midterm elections, where the cost of living remains a key issue for many voters.

Luke Wilson (1:04)

Those voters include these supporters of President Trump at a rally in Ohio this week.

SPEAKER_3 (1:10)

So far, he's done everything he said he's going to do, like no tax on tips and all that stuff. But what he could do better is bring prices down, bring fuel prices down.

So, yeah, gas prices affect me a bunch.

Luke Wilson (1:25)

I own a pizza shop.

SPEAKER_3 (1:26)

I've got Delivery Boys.

Pascal Fletcher (1:27)

Everything that we eat, you know, cheese, flour, boxes, you name it, it can go up.

Wang Zheng (1:32)

I think, you know, gas prices make everybody kind of feel the squeeze a little bit.

Luke Wilson (1:38)

Russ Mould is investment director at AJ Bell. How are markets reacting to this, Russ?

Russ Mould (1:43)

Hello, look, fairly calmly. The benchmark 10-year US Treasury yield, the kind of key headline government borrowing cost in America, barely changed. I think partly because a lot of the inflation increases down to oil, where the Federal Reserve has no control.

Partly because markets are already pressing in for one-quarter percentage point increases from the Fed in the next year. And partly because that borrowing cost is already at a 24-year high. So I think they've kind of seen this one coming.

Luke Wilson (2:07)

Thanks, Russ. We'll be back with you shortly. New figures show exports from China rose 36 percent year-on-year in September, much higher than expectations.

Wang Zheng (2:18)

In the first three quarters, the growth rate of foreign trade was the fastest for the same period in nearly five years, with both quarterly and monthly growth rates generally showing an accelerating trend. And there is a solid foundation and support for continued import and export growth in the fourth quarter.

Luke Wilson (2:42)

Comments from Wang Zheng, the deputy head of China's General Administration of Customs there, the boom has mainly been driven by high demand for technical components for small electronics and artificial intelligence data centers, as well as rising exports of Chinese electric and hybrid cars. Hao Zhou is chief economist at Guaotai Junan International, based in Hong Kong.

Hao Zhou (3:03)

For China, the external sector is doing quite well. And we not only look at this kind of performance from China, but also from South Korea and other regional peers in Asia. We can see that the manufacturing related to AI stuff is doing pretty well, which means that globally, the manufacturing supply chain has been performing quite resiliently.

Luke Wilson (3:30)

And good export numbers, but we know China's domestic economy is struggling relatively to how it's been in the past. Are there concerns that China and its economy is too reliant on exports?

Hao Zhou (3:43)

Many economists are concerned that domestic demand has not doing pretty well. There are some kinds of weakness, especially from the lower tier cities in China. And I think one encouraging signal in China is that the housing market has generated some kind of green shoots, especially in Shanghai and Beijing. At least this will help improve the household balance sheets.

Luke Wilson (4:12)

Hao Zhou, Chief Economist at Guotai Jinan International. Russ Mould, Investment Director at AJ Bill, still with me. Russ, when we see these bumper export numbers from China, what impact does that have on the rest of the world?

Russ Mould (4:26)

First of all, it shows that the made in China policy of focusing on key technologies is working for the Chinese. It does mean that Western consumers are getting cheap goods, which certainly helps them. But it remains clearly a source of tension in terms of that huge Chinese trade surplus. The Americans are still unhappy about it, hence the tariff discussions. And the European Union last week held talks on trying to limit imports of hybrid cars. And they may also look at chemicals and machinery after trade talks next spring.