In(de)flation is the theme of the week, though there's a US current account chart in there as well. US, UK and EU had their inflation figures out last week, and so far I'm reading that there appears to be a peaking out of deflation and a possible turning point developing around the world in the inflation numbers. Granted we're not out of the woods yet, the signs are interesting, and the implications are worthy of thought.
1. US Inflation
US CPI came in at -1.4%, still down strongly following the commodity price bubble and crash, but at a turning point. All signals are for an increase in inflation going forward. The producer price index backs it up, the import price index backs it up, the ISM price diffusion index backs it up, the excessively loose monetary conditions -worldwide- back it up, and so too does what appears to be a recovery in commodities prices. Following this view, the next few charts also are on price levels and show what I think is a turning point.
2. UK Inflation
Headline CPI recorded another down figure; below the BoE's mandated 3% target and within the "letter to the chancellor" range. Of note is that RPIX is showing the previously touted turning point - RPIX excludes mortgage costs; which have obviously eased given a normalization of interest rates and lowering of the BoE's key interest rate to 0.5%. As with the US figures this is still in deflationary territory, I see a similar story here - but a little less so than the US.
3. Euro Area Inflation
After booming strongly to a peak of around 4% last year, Euro Area inflation crashed into deflationary territory - echoing the story of the previous two - of commodity price crashes (as well as a generally catastophic decline in economic activity). However as before, the inflationary pressures story applies here too. What's more, the picture on the surface will tell a different story than the diverse and ructious one across the various member states (already apparent, for example Ireland and Portugal -2.4% and -1.2% vs Hungary and Romania with 5% and 4.9%).
4. Commodities (CRB Spot Index)
It would be unfortunate not to include a commodities price chart after the previous comments on commodities and inflation. This is the CRB spot index, with yearly % changes and the index level. Should be no surprise to anyone with an eye on the markets; after a strong run up in the last few years it crashed hard, recording falls of 20-30%. However as mentioned previously there appears to be an attempt at recovery with the % fall decreasing, and the index showing a clear bounce from the fall - this could be a dead cat bounce - or it could be that the fundamentals really do support it i.e. there will be demand for commodities, and supply is relatively constrained and inelastic for many.
5. US Current Account
Final chart is the US current account - which breaks directly from the previous theme, but hey it came out last week (although a rebound of inflation in the US might cause the US dollar some grief which could either change behaviour or make the figures worse). Unsurprisingly imports fell faster than exports giving the US a slightly smaller current account deficit of $98.8 billion in Q2vs a revised $104.5 billion in Q1. The deficit was the smallest in 5 years, and continued a cyclical contraction which is more than likely to eventually head back to larger figures once the US consumer finishes deleveraging and starts buying stuff from asia, et al again.
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