This week we look at some of the monetary policy decisions that were announced, then review the consumer spending stats in the US before checking in on inflation in the US as well as the UK. We wrap-up with a snapshot of the commodities market.
1. Monetary Policy Review
This week there were a few interest rate decisions out; the Reserve Bank of New Zealand held rates steady at 3.00% citing global growth as well as the earthquake impact. The Reserve Bank of India increased rates again; lifting the repo rate +25bps to 6.00% (and the reverse repo rate +50bps to 5.00%) as inflation concerns continued. The Swiss National Bank left the 3-month libor target rate unchanged at 0.25%, judging current levels to be appropriate. The Central Bank of the Republic of Turkey held its 1-week repo rate at 7.00% but cut the overnight borrowing rate -25bps to 6.25%. There was also the Bank of Japan of course, which intervened in the currency markets this week for the first time in 4 years, as the strong yen started to put pressure on the Japanese economy. So basically same story here as usually mentioned - a very de-synchronized approach to monetary policy across the globe at the moment as we carry on through the uneven recovery.
2. US Retail Sales
US retail sales beat expectations in August, rising 0.4% month on month vs consensus 0.3%, and more or less flat vs July's growth rate. Core retail sales grew 0.6% vs expected 0.4%, and previous 0.2%. The strong sectors were gasoline station sales, food & beverages, and clothing; while the weak sectors were health & personal care, sporting goods & hobby stores, general merchandise, and nonstore retailers. So the numbers are relatively positive - at this stage of the recovery a small positive or even just a plain positive is a win; but retail sales are still tracking well below trend.
3. US Inflation
US CPI came in flat year on year again, with headline inflation rising 1.2% year on year vs 1.3% in July, and core rising 1.0% - the same as July and June. Basically nothing to see here right now, this is the quiet part on the inflation front; the only real price pressure is coming from energy and food prices, but there is currently a baseline of demand that will probably stop the situation from falling into deflation. If any where the outlook is probably for a few more months of flatness, with a gradual increase.
4. UK Inflation
UK inflation rose 3.1% in August, placing it above the Bank of England's target 2.0% for the 8th consecutive month. The situation in the UK is a little different from the US one, there are a few one-offs in the CPI results still, but the outlook is for relatively persistent inflation around 3%. The Bank of England quarterly inflation outlook poll showed UK consumers expect prices to increase by 3.4% over the next 12 months, up from 3.3% in the May results, and the highest since August 2008. So the UK situation isn't terrific; relatively high inflation with relatively stagnant growth.
Since we looked at some CPI stats in this edition, it would be rude not to look at where commodities are tracking. If there is any reason for inflation to be underpinned at least, this is it. The dichotomy of economic growth rates in the global economy between dynamic emerging markets and mature developed markets is having an interesting effect. China and other emerging markets still has a strong appetite for commodities as it invests in infrastructure, and continues manufacturing - for exports as well as meeting the growing domestic demand. This will ultimately be good for the global economy, but it will also drag up inflation rates around the world as commodity input prices feed their way through the value chain.
So we looked at some of the monetary policy decisions last week and saw what will be characteristic of the global economic recovery as it plays out over the next couple of years, i.e. de-synchronised monetary policy, as a result of an uneven recovery and resulting political pressures. We then looked briefly at retail sales in the US and saw that people are still spending, and reviewed inflation results from the US and UK and noted that although inflation is currently flat-lining in these developed economies, the outlook will be for at least a gradual increase. Indeed if you think about the dynamics in play in the commodities markets, the possibility of the strong emerging markets dragging up not only global growth, but global inflation starts to get interesting...
1. Reserve Bank of New Zealand www.rbnz.govt.nz & Reserve Bank of India www.rbi.org.in & Swiss National Bank www.snb.ch & Central bank of the Republic of Turkey www.tcmb.gov.tr
2. US Census Bureau www.census.gov
3. US Bureau of Labor Statistics www.bls.gov
4. Trading Economics www.tradingeconomics.com
5. Thomson Reuters/Jefferies www.jefferies.com
Article Source: http://www.econgrapher.com/top5graphs18sep.html
Is the correction over?
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