Top 5 Economics Graphs of the Week - 19 Mar 2011

This week the focus is on inflation as we review some of the latest inflation data from a selection of key economies. First we look at a revival in US inflation, then review the situation up in Canada, then we look at the inflation situation in the Euro Zone, before finishing up with a look at the BRIC economies. Following that is a review of some of the key monetary policy decisions over the past week.

1. US Inflation
The US recorded annual headline inflation of 2.2% in February, up from the 1.7% rate seen in January (up 0.5% month on month). Core inflation also continued its climb, rising to 1.1% from a low of 0.6% in October last year. The key driver of the rise in headline inflation was commodity prices, but specifically energy prices - with energy up 11% (no surprise given the recent run up in oil prices). The main takeaway from the result was a confirmation that the inflation situation in the US is starting to see greater inflationary pressures due to the transmission of rising commodity prices. The base case still seems to be one of higher or normalized inflation, but with a possibility of lower inflation or deflation if commodity prices drop back - but then you can't count out even higher inflation either - especially if the recovery really starts to gain traction and momentum.

2. Canada Inflation
To the north in Canada inflation came in at 2.2% for the 12-months to February (up 0.3% month on month), slightly lower than the 2.3% seen in January. The main driver of inflation in Canada has been energy costs, with gasoline prices up 15.7%, but the transportation component also tracked upwards, rising 5.1% from February, and alcohol and tobacco rising 2.7%. The core inflation figure in February was 0.9%. Thus the trends are relatively similar to that of the US, with commodity prices driving up inflation, but also a gradual rise in aggregate demand. The Bank of Canada has remained in pause mode after hiking rates three times last year, it is reasonably likely that the Bank may begin to recommence the monetary policy normalization process later this year.

3. EU Inflation
The EU recorded inflation of 2.4% in February, up from 2.3% in January, with the broader region recording 2.8% inflation, unchanged from January. EU core inflation came in at 1% after hovering around the 1-1.1% mark for the past few months. The lowest annual rates came from Ireland (0.9%), Sweden (1.2%), and France (1.8%), with the highest rates seen in Romania (7.6%), Estonia (5.5%), and Bulgaria (4.6%). The key contributors were housing (up 4.9%), transport (up 5.7%), and alcohol and tobacco (up 3.5%). As noted by the ECB when it put its tough stance on inflation forward in its latest meeting, inflation is tracking up in the Euro Zone, and it is primarily being driven by commodity prices - rather than by a significant improvement in aggregate demand. The ECB is concerned about second round effects on core inflation, and rightfully so.

4. BRIC Inflation
Looking abroad to the major emerging market economies, the BRIC (Brazil, Russia, India, China) economies have seen inflation rise to much higher levels than their developed market counterparts. Sure, on average the BRIC economies have a higher weighting to food prices in their indices (and rightfully so), so some of the high inflation is a result of last year's surge in agricultural commodity prices. But unlike the developed markets, the BRIC economies have broadly experienced pretty strong economic growth, so the aggregate demand side of the equation is having a significant effect on inflation too. This of course gives rise to policy risk for those markets, with India and China both announcing further monetary policy tightening moves last week.

5. Monetary Policy Review
The main events in monetary policy over the past week were: India increased rate +25bps to 6.75%, Chile increased +50bps to 4.00%, and Colombia increased +25bps to 3.50%, Japan expanded its asset purchase program another 5 trillion Yen in response to the unfolding natural and nuclear disasters, and China raised the required reserve ratio another 50 basis points - placing the rate at 20% for the larger banks. So for the most part it was the same old story of emerging market economies raising rates in response to higher inflation. But, some of the Banks like Norway and Switzerland made comments about the need to normalize policy in the near term... in other words more and more central banks are starting to talk about rising inflation, so this may well be the part where we start to see inflation as a global theme rather than an emerging market theme.

Summary

So we saw the US with rising headline and core inflation, showing that inflationary pressures are well entrenched for now. Up in Canada, inflationary pressures were likewise tracking along, likewise driven by the surge in commodity prices - but particularly energy prices. Over in the EU, the ECB's comments on inflation were confirmed by higher headline inflation, and it is right to worry about the second round effects of rising commodity prices. In the BRIC economies, the distinction is made that inflation is not just a supply side - commodities thing, it is also an aggregate demand thing. Thus we continued to see monetary policy tightening by emerging market central banks, but we also started to see greater vigilance on inflation from developed market central banks. So the question arises; has inflation now progressed from an emerging market theme to a global theme?

Sources
1. Bureau of Labour Statistics www.bls.gov
2. Trading Economics www.tradingeconomics.com
3. Eurostat epp.eurostat.ec.europa.eu
4. Trading Economics www.tradingeconomics.com
5. CentralBankNews.info www.centralbanknews.info

Article Source: http://www.econgrapher.com/top5graphs19mar11.html

Top 5 Economics Graphs of the Week - 27 November 2010

This week we review the Q3 GDP revisions from the US and UK, then we look at the October CPI data from Canada and Japan, before finishing with a summary of a selection of emerging market monetary policy decisions over the past week.

1. US Q3 GDP Revision
US Q3 GDP was revised up to a 2.5% seasonally adjusted annualised rate, from the previous estimate of 2.0%, this was ahead of expectations for 2.4%. Within the results final demand was revised up, and net exports made a smaller negative contribution. Year on year GDP is up 3.2% vs 3.0% in the September quarter. Overall the result is relatively strong, showing a continuation of the bounce back, and it could well gain momentum, but the more likely outcome is ups and downs over the next year.

2. UK Q3 GDP Revision
UK GDP expanded 0.8% from the June quarter, in line with previous data, and placing the UK economy ahead by 2.8% compared to 2009. In the detail the stronger sectors were construction, manufacturing, exports, and transport, storage and communication services. While the weaker sectors were mining and utilities. The UK economies continues to bumble along out of recession, but it is quite promising that exports are expanding, the test will be how the UK government can manage its budget and how monetary policy plays out from here.

3. Japan Consumer Price Index
Japan saw its first positive year on year inflation rate in October, with CPI increasing 0.2% year on year, vs -0.6% in September. But it can't really be said that deflation is done, as much of the increase in the CPI was related to an increase in tobacco taxes. But it will be a welcome result to the Bank of Japan, which has been trying and trying to stimulate the economy and start inflation going again, instead of the persistent and pernicious deflation.

4. Canada Consumer Price Index
Canada saw a bit of a jump in inflation in October, with the CPI increasing 2.4% year on year vs 1.9% in September. This has caused the market to anticipate further rate rises from the Bank of Canada, which last changed the key policy rate to 1.00% in September, as part of a gradual normalization of monetary policy. Canada in many ways has been relatively lucky in coming through the crisis, and is in some ways similar to Australia, with its rich natural resources.

5. Monetary Policy Review
The past week saw several emerging market economies review their monetary policy interest rate settings, including; Russia, Mexico, Georgia, Kenya, Poland, Nigeria, Angola, and Israel. The main standout was Angola, which slashed its benchmark rate -394 basis points to 18.00% as a new central bank governor took the helm. Nigeria and Israel also made adjustments to the spread between borrowing and lending around the main policy rate, as steps towards policy normalisation following the global recession. But basically the main theme was a lot of holding rates, with much of the justification being that rates were appropriate at current settings either due to inflation being contained or relatively high, and overall balancing the risks of growth and inflation.

Summary

So we saw GDP expanding in the US, and at a faster pace than expected, and with promising signs in the details. Meanwhile in the UK the results were also relatively positive. But for both nations the challenge for their economies will be to carry on the momentum of the initial bounce back - but in a sustainable manner.

On the inflation and monetary policy front, there were positive, but not fabulous results in Japan, as the first positive headline inflation figure came through in almost 2 years. While Canada saw an acceleration of inflation, and speculation of further rate hikes. On monetary policy, there was a few meetings over the week but very little action, as settings were seen appropriate in achieving the balance between growth risks and inflation risks.

Sources
1. US Bureau of Economic Analysis www.bea.gov
2. National Statistics Office www.statistics.gov.uk
3. Trading Economics www.tradingeconomics.com
4. Trading Economics www.tradingeconomics.com
5. Central Bank News www.centralbanknews.info

Article Source: http://www.econgrapher.com/top5graphs27nov.html

Top 5 Economics Graphs of the Week - 24 July 2010

This week we look at UK GDP, Canada monetary policy and inflation, review some of the monetary policy decisions of the week just gone, and then assess some of the housing data on the US real estate market.

1. UK GDP
The UK surprised in the second quarter of 2010, recording growth of 1.1% q/q vs expectations of a 0.6% increase, and accelerating since the previous quarters' much milder growth. However the growth spurt is widely expected to be short lived amid requisite government cuts in public spending. On an annual basis the UK economy grew 1.6%. But as with most advanced economies the bounce-back in late 2009 and early 2010 are likely to taper off into the 2nd half of 2010, potentially realising fears of a double dip recession, or at least proving true predictions of a stop-start, subdued recovery.


2. Canada Inflation and Monetary Policy
Canada (the first G-7 country to raise rates), again hiked its interest rate from 0.50% to 0.75% this week, while at the same time reporting inflation of 1% in June (down from 1.4% in May). The move was widely expected as the Bank of Canada looks to normalise monetary policy as the recovery becomes gradually more entrenched, indeed Canada is one of the luckier developed economies; finding peers in the likes of Australia and New Zealand as countries that are raising rates to ensure the sustainability of their relatively stronger recoveries. But the outlook for the Canadian economy, and the course of its monetary policy will probably depend as much on international events as domestic developments.


3. Monetary Policy Review
Along with the Bank of Canada raising its rate to 0.75% from 0.50%, the South African Reserve Bank left its rate at 6.50%, while Banco Central do Brasil increased its rate to 10.75% from 10.25% - a move that was less expected vs the consensus for a 75bps increase. The decisions show some of the spectrum of activity going on in monetary policy at the moment; there's countries like Brazil; with surging economic growth that are now switching the focus from growth to controlling inflation. While countries like South Africa are still trying to promote economic growth and recovery; yet others like Canada are beginning the process of normalisation. It just goes to show that while during the crisis the policy easing was synchronised, the path to normalisation will be anything but.


4. US Housing Starts
US housing starts in June fell to 0.549m on a seasonally adjusted annual basis, this was down both on May (0.593m) and consensus (0.58m). The lack luster results show that housing is still suffering from poor economic conditions, and a lack of tax credits. And while conditions remain significantly lower than pre-crisis levels, one positive was a slight improvement in permits. But it will take some time for the drop off in inventory building in the housing market to translate through to higher prices - which may be the thing needed to restart activity in this space; don't hold your breath though.


5. US Existing Home Sales
Another key US housing data point out this week was US existing home sales, the data reflected what is obvious - a generally weak housing market. The number of existing homes sold on a seasonally adjusted annualised rate was 5.37m for June, versus May figure of 5.66m, and up slightly versus consensus of 5.26m. The only positive in the report was the short term rise in prices, but this is likely to be largely temporary as the stubbornly high unemployment rate caps any further rises in prices, and housing inventories rise further to about 10 months. So again, surprise, surprise, the US housing market is still not well!


Summary

So we looked at UK GDP and saw that the recovery is chugging along, but that despite the spike up in Q2, it will be a long slow recovery, especially as the UK government looks to get its financial affairs in order.

On the monetary policy front we saw further normalisation from Canada, attempts at stimulating growth by South Africa, and further moves to hold off over-heating in Brazil. The conclusion remains, that while we saw a synchronised loosening of monetary policy during the crisis, the recovery will see a much less synchronised normalisation of monetary policy.

And last but not least, we reviewed some of the data that came out over the week on the US housing market; seeing that housing starts displayed continued weakness, and that existing home sales were still in poor shape. So aside from a likely temporary increase in prices in the existing home sales report, the US housing market is still in poor shape, and is unlikely to really gain wind until the rest of the economy goes through the recovery process.

Sources
1. UK National Statistics www.statistics.gov.uk
2. Bank of Canada www.bankofcanada.ca
3. Banco Central do Brasil www.bcb.gov.br & South African Reserve Bank www.reservebank.co.za & Bank of Canada www.bankofcanada.ca
4. US Census Bureau www.census.gov
5. National Association of Realtors www.realtor.org

Article Source: http://www.econgrapher.com/top5graphs24jul.html

Top 5 Graphs of the week - 26 June 2010

This week we look at the progress of the economic recovery in New Zealand, examine the latest US consumer sentiment statistics, then review CPI data from Canada and Japan, and finish up with a review of the trade data from Japan this week. The word gradual pops up several times, and is consistent with the theme of a broadly gradual global economic recovery.

1. New Zealand GDP
New Zealand recorded its 4th quarter of positive GDP growth with 0.6% q/q for the March quarter of 2010. This matched consensus estimates, but was down slightly from the 0.9% recorded in the December quarter of last year; reflecting the somewhat subdued economic recovery, following one of the worst recessions in decades. The growth mostly came from the primary sector and manufacturing sector. New Zealand also reported its current account numbers, showing a current account deficit to GDP ratio of -2.4%, the lowest in more than a decade. Overall the NZ economy is in recovery mode, with the central bank already lifting interest rates, but as I mentioned previously, it's onwards, but only slightly upwards.


2. US Consumer Sentiment
The US consumer sentiment report for June showed a level of 76.0 for the final reading, up from the May reading of 73.6, with an improvement in the current conditions component to 85.6 from 81 in May; the highest in about 2 years. The future expectations component only rose slightly to 69.8 from 68.8 in May. The index is starting to see gains as employment conditions have seen improvements due to some one-offs such as the census, but also genuine jobs normalization (not growth, but normalization - i.e. corrections to overreactions during recession). The results are consistent with a seemingly sustained, yet gradual in the US.


3. Canada Inflation
Canada reported an annual inflation rate of 1.4% in May, following a rise of 1.8% in April. The slightly slower rate reflected a moderation in gasoline costs, and lower prices for clothing. On a core basis, the consumer price index rose 1.8% vs 1.9% in April. The Bank of Canada expects that inflation will be "slightly higher" than its 2% target over the next year, indeed the Bank of Canada has already begun its tightening or monetary policy normalization; increasing the key lending rate to 0.50% from 0.25% in its June meeting. As noted previously, Canada is in a relatively enviable position compared to most over developed economies.


4. Japan Deflation
Japan's annual rate of deflation slowed slightly in May to -1.2%, vs a fall in the consumer price index of -1.5% in April. The consensus was for a -1.3% drop in the CPI. The result is unlikely to dampen the Japanese Government's demands for the Bank of Japan to step up measures to combat deflation. Indeed, the Bank of Japan recently announced a 3 trillion-yen program to encourage lending to companies. The deflation trap can be an insidious one, causing economic growth to slow as companies and households hold off spending; waiting for lower prices - it also encourages over-investment into financial assets vs real assets. The Bank of Japan is not seen raising interest rates until at least 2012, as the fight against deflation continues.


5. Japan Trade
Staying with Japan, the monthly trade figures were out this week, showing continued strong year on year growth, but reasonably lackluster monthly growth. Exports totalled 5.3 trillion yen, and imports 4.9 trillion yen, leaving the trade surplus down at 324 billion yen. Strong demand from China saw exports to China grow 25.3% year on year; with the increased flexibility of the Yuan, the Yen may strengthen against the Yuan, as the imbalances with the USD are unwound. The Yuan USD rate was about 6.796 at the time of writing. Japan has yet to see a return to pre-crisis levels of trade, in contrast to China which has practically fully rebounded. Yet the gains are positive, and also a confirmation of a gradual but seemingly sustained global economic recovery.


Summary
So we have the New Zealand economy showing signs that the recovery is becoming increasingly entrenched, but at the same time; tracking at a relatively subdued pace as the economy recovers in the true sense of the word from one of the worst recessions on record. Meanwhile in the US, the consumer sentiment data lines up with other data points showing a gradual improvement and normalization in activity levels; as the US continues its fragile economic recovery.

On the inflation front, Canada is showing reasonably subdued levels of inflation for now, but as noted by the Bank of Canada, inflationary pressures are likely to grow over the coming year as the economic recovery continues. On the other hand, Japan continues its struggle with deflation, causing the government to put increasing pressure on the Bank of Japan to do more to stimulate the economy and beat the deflation.

But things aren't all bad for Japan, with its international trade figures showing a gradual recovery, which confirms a gradual improvement in demand around the world (as Japan is still a key source of consumer electronics to the world). We also saw the passing of the first week since China announced plans to improve flexibility of the Renminbi; since then the moves haven't been spectacular, but it has managed to gain 0.03 against the USD, which leaves us with the key word of this article and of the global economy: gradual.

Sources
1. Statistics New Zealand www.stats.govt.nz
2. Reuters/Univesity of Michigan customers.reuters.com
3. Bank of Canada www.bankofcanada.ca
4. Trading Economics www.tradingeconomics.com
5. Japan External Trade Organization www.jetro.go.jp

Article Source: http://www.econgrapher.com/top5graphs26jun.html

Canada Becomes First G7 Country to Raise Interest Rate

The Bank of Canada became the first G7 country to raise rates, lifting the target for the overnight rate 25bps to 0.50%, a move widely expected. The Bank however did note the considerable risks to domestic and global growth, and noting the quote below, the path back to neutral may not be clear cut:

"This decision still leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in light of the significant excess supply in Canada, the strength of domestic spending, and the uneven global recovery.

Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments."

The Bank also commented in its statement about the relative strength of the Canadian economy. Indeed, Canada recorded q/q GDP growth in Q1 of 1.5%, showing a consistent uplift in momentum of its recovery. Unlike the other G7 economies, Canada benefits more from a recovery in commodity prices, and of note, a relatively strong fiscal position (having realised the importance of fiscal discipline in previous years).

"Activity in Canada is unfolding largely as expected. The economy grew by a robust 6.1 per cent in the first quarter, led by housing and consumer spending. Employment growth has resumed. Going forward, household spending is expected to decelerate to a pace more consistent with income growth. The anticipated pickup in business investment will be important for a more balanced recovery."

So the outlook for the Canadian economy is reasonably robust, it is a similar case to Australia, and these two economies are among the leaders in the developed and industrialised economies. In terms of the interest rate and monetary policy outlook, if all else were held constant; if there were no Euro crisis, if China's economy was growing sustainably, and if all the wild cards were hidden away, then you would probably expect a series of further increases in the rate by the Bank of Canada. However as these are, once again, interesting times, the pace and consistency of interest rate increases on the path to Canadian monetary policy normalisation will certainly be uneven... just as the global recovery will continue to be uneven.

Sources
Econ Grapher Analytics www.econgrapher.com
Bank of Canada www.bankofcanada.ca
OECD Stats stats.oecd.org
Trading Economics www.tradingeconomics.com

Article Source: http://www.econgrapher.com/2june-canada.html

Top 5 Graphs of the week: inflation risks rising

Are upside inflation risks rising in developed economies? That's one question we look at in this week's edition. First up is a synopsis of the UK GDP figures, then a look at rising British inflation, the Bank of Canada decision and inflation rate, the surge in US producer prices, and a look at New Zealand inflation. Overall the theme is that there are indeed signs of increasing inflation risks for these developed economies, and even though some of the short term drivers may be temporary there is the risk that they have a lasting impact.

1. UK economy muddles along...
The first G7 economy to report growth, the UK saw its economy growing at 0.2% q/q in Q1 2010, against expectations for a repeat of Q4 2009 of 0.4%. On a year over year basis it is still just in negative territory. The recent two quarters provide tentative evidence that the deepest recession on record for the UK could be coming to an end. But the usual line for economic commentary these days is that significant risks remain. The UK is currently faced with an official unemployment rate of 8%, and its once burgeoning financial sector will take some time to recover from the GFC, and significant risks remain around government finances and inflation.

2. While UK inflation picks up
The UK saw its inflation rate pick up again to 3.4% on an annual basis from 3% in February, and is currently sitting well above the official 2% target. Granted, much of the increase is related to the reversal of the drop in the value added (sales) tax which was dropped as the financial crisis set in to help stimulate the economy. The commodity price rebound has also assisted the resurgence of inflation. But even though these are temporary or artificial drivers of inflation, there is the risk that inflation expectations could be impacted and that wage and price negotiations factor in a higher rate, which will require the Bank of England to move on its record monetary policy stimulus measures.

3. Canada holds rates again, inflation remains stable
The bank of Canada held off again on increasing interest rates from the record low 0.25%. Meanwhile inflation came in at 1.4% year on year for March, down on Feb; core inflation grew 1.7% in March, against expectations for a 1.9% rise. The Bank of Canada also noted its conditional commitment to hold rate low at least until Q2 2010 had expired, and that "the need for such extraordinary policy is now passing", and thus will likely start paring back its policy stimulus as conditions dictate in keeping with the 2% inflation target. The Bank of Canada also lifted its growth projections for the Canadian economy to 3.7% in 2010 slowing to 3.1% in 2011 and 1.9% in 2012.

4. US producer prices continue to increase
US PPI jumped unexpectedly in March, rising 0.7% against forecast 0.4% and February's -0.6%. On an annual basis it rose 6% in March. Meanwhile core PPI rose 0.1% month on month and 0.8% year on year. Thus much of the increase in prices is related to food prices and energy prices i.e. the great commodity price rebound. But as noted in the UK situation, there is a real risk that this temporary inflationary surge translates into a more generalized pick up in inflation and inflation expectations. This could have the impact of rising wage and salary costs even as unemployment remains extremely high (and as noted by the IMF, could be higher than indicated). Thus the risks for US inflation remain to the upside.

5. New Zealand inflation moves sideways for now
New Zealand inflation moved sideways in the March quarter (as noted in my previous article), but looming factors will make this a temporary situation. The headline inflation figure was 2% y/y, on a quarterly basis it was up 0.4% since December 2009, below consensus estimates for a 0.6% increase. As noted factors like the emissions trading scheme, and increases in ACC insurance premiums, and possibly an increase in the GST (sales tax) rate, will have an artificial but significant impact on price levels in New Zealand. While the RBNZ wont be panicing about this, it may start to raise rates back to neutral as the risk of more generalized inflation picks up as the New Zealand economy continues to recover.

Summary

So we looked the UK economy, and saw significant risks to the recovery as the UK emerges from one of its deepest ever recessions. At the same time we saw inflation picking up in the UK, even though the short term drivers may be temporary. Looking at Canada, we saw the Bank of Canada moving ever closer to an increase in interest rates as inflation moved sideways, but the Bank of Canada lifted its outlook for the Canadian economy, and noted the cessation of its low interest rate commitment.

On to the US, we saw producer prices showing a marked rise, and even though much of the drivers were temporary e.g. commodity price rebound, price normalisation etc. There remains the risk that it gets passed through and factored into inflation expectations. Likewise in New Zealand the outlook for inflation is definitely upwards based on artificial and temporary factors, but the risk is there that these factors pass through into higher real inflation.

Thus the evidence is broadly showing that inflation is currently trending either sideways or upwards in these developed economies, certainly the short term risks remain to the upside as temporary and artificial factors play through. But there is a real risk that these short term factors have a lasting impact. So who will be first to raise interest rates?

Sources
1. UK National Statistics Office www.statistics.gov.uk
2. UK National Statistics Office www.statistics.gov.uk
3. Bank of Canada www.bankofcanada.ca & Trading Economics www.tradingeconomics.com
4. US Bureau of Labor Statistics www.bls.gov
5. Statistics New Zealand www.stats.govt.nz

Article Source: http://www.econgrapher.com/top5graphs24apr.html