Top 5 Economics Graphs of the Week - 22 May 2011

This week we take a look at some inflation numbers from the EU and UK, and while on the topic have a check in on commodity prices. Then we review the latest GDP numbers from Japan, before finishing up with a check in on global monetary policy.

1. EU Inflation
The EU saw a continued spike in inflation, with Euro Area annual inflation at 2.8%, vs 2.7% in March (1.5% in April 2010), while EU annual inflation rose to 3.2% vs 3.1% in March (2.0% in April 2010). Meanwhile Euro Area Core inflation was perhaps the most remarkable, rising to 1.6% in April, from 1.3% in March, and just 0.8% in April 2010. The highest rate of inflation was seen in Romania (8.4%), followed by Estonia (5.4%); while the lowest rate of inflation was recorded in Switzerland at just 0.1%, followed by Norway with 1.3%. While there is a degree of divergence in results, inflation is broadly creeping upwards in the Euro Zone and Core inflation is fast approaching the ECB inflation target.

2. UK Inflation
Over in the UK, a similar theme of rising inflation was seen with April annual consumer price inflation of 4.5%, up from 4.0% in March, and 4.0% in April 2010. The spike in inflation in the UK has caused some to speculate on a sharp rise in interest rates from the Bank of England, with inflation still well above its official inflation target. However the Bank of England, by and large, is not particularly set on aggressive tightening, particularly when the UK economy is still struggling along in recovery mode. The most likely policy path will be a steady path of rate increases, perhaps commencing later this year, depending on how the broader economy fares.

3. Commodities
On a rolling 12 month return basis, the latest data shows commodities were up 35.6% as measured by the Reuters/Jefferies commodity index. On a rolling monthly basis though the figure was -6.6% driven by a sell-off in a few commodities, particularly Silver. Commodity prices continue to be the key variable for 2011, as rising prices have catalyzed uprisings and social unrest, driven surging inflation in emerging markets, and have begun to have an increasing impact on inflation in developed markets. There's also the growth risks that high commodity prices present. But commodities are probably a good example of mean reversion in practice as high prices generally lead to a supply response, thus prices shouldn't be able to run up too high for too long unless structural changes have taken place in the global economy.

4. Japan GDP
Japan had a disappointing Q1 GDP figure, with GDP declining -0.9% on a quarterly basis (annualised -3.7%) , compared to -0.8% in Q4 2010, while Q1 2010 was 2.2%. On an annual basis this mean contraction of -0.7%, compared to 2.4% in Q4 2010, and 5.5% in Q1 2010. Much of the negative results can be explained by the impact of the earthquake as the disaster weighed heavily on private consumption and caused supply chain disruption impacting on net exports, and general uncertainty limiting capital spending. As with most large scale disasters the economic pattern is a short-term hit, but a medium term spike. So, provided the Japanese government can manage the process well, the rebuilding phase should help Japan's economy return to growth later this year, with 2012 likely to see much stronger economic activity levels.

5. Monetary Policy
The past week in monetary policy was relatively quiet with only 5 central banks announcing monetary policy decisions, and of those, only 1 adjusting its policy stance. Vietnam was the only bank to adjust monetary policy settings; increasing its reverse repurchase rate by 100 basis points to 15.00%. Meanwhile those that held their monetary policy interest rates unchanged were: Serbia (12.50%), Hungary (6.00%), Sri Lanka (7.00%), and Japan (0.10%). So there was somewhat of a theme of emerging markets beginning to ease off on aggressive policy tightening (with the exception of Vietnam, which is still seeing rampant inflation) as some inflation pressures begin to ease, if not peak, and as the growth outlook comes to fore in terms of policy risk. Monetary policy, and by extension inflation, remains one of the key factors for the growth and financial market outlook in emerging markets this year.

Summary

So we saw the pace of inflation beginning to show a more marked uptrend in the Euro Zone, which may well mean that the ECB's interest rate increase in April will likely be repeated in the near term. Meanwhile the UK also saw a continued high rate of inflation, but the Bank of England is still unlikely to budge as the UK economy is still on the go-slow. On a related topic, commodity prices saw surging 12-month returns in May, but with monthly returns diving into negative territory, perhaps heralding an easing in commodity prices over the medium term. In Japan, first quarter GDP results were disappointing, driven into negative territory by the disaster impact. On monetary policy, further signs of a peak in monetary policy tightening for emerging markets surfaced as the growth-inflation risk mix is becoming increasingly finely balanced.

Sources
1. EuroStat epp.eurostat.ec.europa.eu
2. National Statistics Office www.statistics.gov.uk
3. Jefferies www.jefferies.com
4. OECD Statistics stats.oecd.org
5. Central Bank News www.centralbanknews.info

Article Source: http://www.econgrapher.com/top5graphs22may11.html

Three Cs Going Crazy in Commodities

With silver spiraling out of control, it's worth checking in on some of the other commodities. Indeed the agricultural or soft commodities have, as a group, been surging in recent times, sending the Dow Jones UBS commodities index up over 30% year on year...

http://seekingalpha.com/article/267070-three-cs-going-crazy-in-commodities

U.S. Inflation Monitor, Part 2: A Broader View

In the second installment of this two-part article on U.S. inflation (see first part, on CPI and PPI, here), we look at a few other data points -- specifically, commodities, TIPS, and import and export prices. The point of this wider look is to gain a better gauge of where inflation is coming through and to garner any clues as to the traction inflation has. This is important for investors, as inflation has a critical impact on wealth, valuations, and prices. A keen awareness of the key inflation trends can help investors position themselves appropriately to both gain protection as well as profits.

http://seekingalpha.com/article/258968-u-s-inflation-monitor-part-2-a-broader-view?v=1300457214

Commodities After the Post-Crash Rebound

Most people who are paying attention to global markets are talking about commodities. And rightfully so: After the initial bounce-back following the 2008 commodity market crash, commodities are starting to rise again. On a rolling 12-month basis, the Reuters/Jefferies Commodity Index is up about 20-30%, and the Dow Jones UBS Commodity Index is likewise up over 20% on a rolling 12-month basis. So what's going on?

http://seekingalpha.com/article/255451-commodities-after-the-post-crash-rebound

Top 5 Economics Graphs of the Week - 18 September 2010

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.

5. Commodities
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.

Summary

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...

Sources:
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

Top 5 Graphs of the week - 19 June 2010

This week we look at Industrial Production figures from the US, EU, Japan and China, and then we take a look at where commodities are tracking, before reviewing the inflation results out over the week from the US and EU. Then we finish up with a review of the monetary policy decisions from Japan, Switzerland, and Mexico. The analysis echoes some of the comments made in the economic calendar for the week just past.

1. Industrial Production
Industrial production figures released over the week showed no real surprises with the pattern broadly in line with the expected path from recovery. The US showed a deceleration in Industrial production growth as the comparator figure started to recover; still too soon to call a double dip but it will pay to watch the rest of the data. Japan also saw a slight deceleration in its industrial production recovery - as the trade dependent economy continues to rebound from the deep drops during the height of the crisis. The EU showed continued signs of recovery or renormalisation, and the China data - there for comparison showed continued strength. So broadly Industrial Production has shown a period of deep contraction followed by short term recovery, the question is - where to next?

2. Commodities Index
On a slightly related note, commodity prices have over the past year recovered slightly from the crash in late 2008. however this recovery is showing signs of running out of steam. This may be driven by lower demand from large industrial producers such as China (which lines up with a slight tapering of its industrial production growth rate), but also risk appetites will be playing into the equation. On the inflation front it is a bit of a two-way street (as is apparent in the next two charts), with falling year on year returns likely to play into lower headline inflation, and relatively subdued core inflation having little inflationary impulse on commodity prices.

3. US Inflation
US headline inflation came in at 2%, down from 2.2% in April. Core inflation compared to May 2009 was up 0.9%, the same rate as April. The headline figure is starting to turn due to relative topping out of commodity prices, and will certainly give ammunition to those who see a high risk of deflation for the US. It is likely that disinflation will continue, but unless there is continued weakness and a sizable double dip, then it's probably a low probability outcome. The results also vindicate the Federal Reserve's stance on interest rates, and gives room for continued super stimulatory monetary policy for the time being.

4. Euro Zone Inflation
EU inflation on the other hand showed signs of further increases, with headline inflation up 1.6% from 1.5%, and core inflation remaining stable at 0.8%. However there is still unlikely to be persistent inflation in the EU as the recovery remains uncertain and weak, indeed fiscal austerity measures may even drive up inflation as price setters seek to compensate for an increases in taxes that may occur as fiscal jitters remain the issue du jour. Not much else to say, but to note that as usual inflation rates vary significantly between countries in the EU - this goes to the repeated observation that the recovery in the EU is going to be gradual, fragile, and uneven.

5. Monetary Policy Review
Three major central banks announced their monetary policy decisions this week, with all of them announcing no change to the interest rate, as their respective situations saw the balance of risks still lying on the growth side, vs those like Australia/Canada/Brazil/India with the risks increasingly turning to the inflation side rather than the growth sustainability side. Banco de Mexico left its core rate at 4.5%, the Swiss National Bank held at 0.25%, and the Bank of Japan held at 0.1%. The interesting point of all was the Bank of Japan announcing a $33 billion dollar loan scheme, whereby it will make low cost funding available to private banks in order to try and spur lending to companies, in an attempt to stimulate the economy and beat down the persistent deflation problem.

Summary

So we saw industrial production continuing its rebound in most economies, with a few key ones, including China, Japan, and the US, showing tentative signs of a deceleration in the rate of growth. However one or two data points a trend does not make. On a related note commodities prices have shown a marked drop in the annual rate of return as commodity prices stabilize following a slight rebound since the 2008 crash.

On the inflation front, in most of the key developed nations there are no clear signs of a pick up in inflation, if anything there is a slight risk for deflation. Indeed as we saw in the monetary policy decisions this week, the balance of risks for most economies are still weighted towards sustaining the recovery, rather than risks of a resurgence in inflation.

And on both the industrial production, commodity prices, inflation, and monetary policy fronts, things could change quickly as the year unfolds. But one thing's for sure, the all clear signal will still be some time coming.

Sources:
1. Trading Economics www.tradingeconomics.com
2. Jefferies www.jefferies.com
3. Bureau of Labor Statistics www.bls.gov
4. EuroStat epp.eurostat.ec.europa.eu
5. Swiss National Bank www.snb.ch & Bank of Japan www.boj.or.jp & Banco de Mexico www.banxico.org.mx

Article Source: http://www.econgrapher.com/top5graphs19jun.html

Top 5 Graphs of the week

Top 5 Graphs of the week

It's been a while since the last update, and things have changed since then. I already have a list of other charts and trends in economics I want to discuss. But for this week the focus is on inflation. In particular we look at recent inflation data coming out of the US, EU, and China. We also look at commodity prices, and recent movements in monetary policy. The overall theme is for a resurgence in inflation. This, it seems, is the reality; but the question is to what extent and when?

1. US Inflation
October's data revealed headline inflation in the US to be getting even closer to zero with -0.2% year on year vs -1.3% in September, there has been a clear bottoming out of headline inflation in the US, and it's probably safe to say that the brief period of deflation is out of the way. In the immediate term the positive trend is likely to continue - even if prices stay the same, due to a decrease in the comparator figure. Drilling into core inflation the figure was a respectable 1.7% year on year, vs 1.5% in Sep. This movement was particularly intriguing as core CPI strips away the effect of food and energy prices.


2. EU Inflation
This diverse area recorded positive inflation in the November flash estimate of 0.6%, having flirted briefly with deflation. The drivers of rebounding commodity prices and loose monetary conditions may be enough to underpin inflation in the near term until momentum comes through from broader economic recovery. The message is inflation, but not that much just yet.


3. China Inflation
China has gotten back into inflation. Of all 3 economies looked at here, this is the danger spot for inflation. You have hyper loan growth, hyper GDP growth, hyper money supply growth, relatively low interest rates and selling of the yuan to keep the fix against the USD. In theory this mix should have a very stimulatory effect on inflation in the middle kingdom. To date this has only gradually occurred given the overhang of the commodities bust. But as commodity prices recover - added to the mix - inflation has turned and November's figure was 0.6%, breaking 9 months of negative year on year price changes.


4. Commodities
One of the catalysts and victims of the turmoil that unfolded late last year was commodities. We saw a tremendous crash, whose effects reverberated around the world, plunging commodity dependent economies like Russia into deep recession, and as we've seen on the previous charts, causing wide gyrations in general price levels. But as the boom and bust came, the ever present ability of markets to overshoot, it seems, has played through once again. Having reached a bottom, commodity prices have started a clear recovery since the lows of March. This is driven by a mix of fundamentals (e.g. emerging market demand) and investor psychology.


5. Monetary Policy Rates
It would be incomplete to look at inflation without touching on monetary policy. It should be of no surprise to the reader that central banks made urgent and drastic cuts to policy rates late last year and early this year. The chart below shows rates in selected economies over the past few years. The adroit observer will note that in places like the EU and particularly the US rates were left pretty low for an extended period. For 2009 this is probably necessary, but the impact of rates too low for too long can be far more damaging than gradually tightening perhaps to quickly. The BIS recently released a report that noted a clear link between bank defaults and policy rates being kept too low for an extended period. While economic recovery is very important, and employment is important, failure to increase rates will mean a strong resurgence of inflation and probably contribute to the formation of future asset bubbles.


The overall message is that inflation is here, and the risks are for a significant resurgence of inflation. It's likely that 2010 will see reasonably subdued - but not insignificant - inflation, while China will see an acceleration of inflation, it's probably also likely that commodity prices will head either sideways or gradually upwards. As for central banks - not sure, but hope that they act responsibly!


Sources:
1. United States Bureau of Labour Statistics
2. Eurostat/ECB
3. Chinese National Bureau of Statistics
4. Thomson Reuters/Jefferies
5. European Central Bank, Bank of England, US Federal Reserve, People's Bank of China, Reserve Bank of Australia

Article Source: http://econgrapher.site1.net.nz/top5graphs14dec.html