David Roche discusses the outlook for inflation, its drivers, and why the recent rise is not going to be just “transitory”.
March surprised mildly to the upside of consensus expectations, headline CPI hitting 2.6% yoy following a 0.6% mom increase. The main driver was the transport component (i.e. gasoline prices). These went from a net drag of -0.39%pts last year to a +0.96%pt driver of the yoy rate this time round, so a net swing of 1.35%pts, or half of overall yoy CPI rate.
While some of the Chinese activity indicators might have perked up, there is no hiding from the disinflationary pressure stalking China’s economy. April CPI dropped back to 3.3% yoy (4.3% in March) while PPI sunk to -3.1% from -1.5% in the previous month. And the problem would be even worse were it not for persistent food price pressures as the impact of the earlier swine flue epidemic continues to pressure meat prices. Indeed, CPI ex-food is now running at just 0.6%.
US household income growth looked pretty solid with a 0.6% m/m gain during January, which tends seasonally, to be a weaker month. That lifts the y/y rate back to a shade under 4.0%, although the near-term trend remains one of moderation. On the spending side the increase surprised on the downside at +0.2% m/m and that pulled y/y growth back to 4.5%
CPI recorded a modest rise in January, headline up to 2.5% yoy from 2.3%, a shade above mkt estimates. Core flat at 2.3% yoy which was a touch above consensus too, but really not much more than rounding. Overall the inflation picture still looks fairly settled.
Disinflation resumed in December with consumer prices surprising to the downside. Headline and core both registered a 1.3% y/y gain, a decline from 1.5% and 1.7% respectively in November. In constant tax terms the decline was a little faster. On the producer price side there is scant evidence of any inflationary pressure. Although headline output prices edged up, core output prices - which are more closely correlated with CPI - ticked a little lower.
The strong upswing in Chinese consumer price inflation in November has a very straightforward explanation. The swine flu epidemic and the devastation this has inflicted on Chinese pig herds – reducing total numbers by over 40%. Indeed, meat prices are up 74% yoy, driven by pork which is now up 110% compared to the same period last year.
Solid August retail sales report which build on the improvement we saw during July. Overall retail sales growth has moved up to 4.1% y/y while control group growth hit 5.3% y/y. Much of the monthly lift was due to higher auto sales, stripping that out and the recent growth rate looks more modest. But overall this is not a sign of false confidence with an increase in big ticket expenditure a positive demand sign.
Slight upside surprise in June core consumer prices as headline y/y moved down amid the base effect. The breakdown shows a further uptick in housing costs (shelter) while there has also been some upward movement in household furnishings and apparel (which was slightly less deflationary), perhaps reflecting tariff effects.
Consumer prices remained steady in June with prices actually falling m/m, which kept the y/y rate at 2.7%. The backdrop would have been more encouraging had swine flu not taken its toll on meat prices while fresh fruit and vegetables have also soared over the past few months.
Slight downside surprise versus market expectations but really nothing too unexpected. The underlying inflation story remains moderate short-term disinflation. There is not much sign the initial raft of tariffs have had much of an effect on consumers, with goods prices a little easier.
While the headline rate pushed up and there was a move higher in services, core inflationary pressures looked relatively stable in April. Future pressures look equally contained, in part reflected in steady PPI output prices. Sterling has been weakening but the rate of decline has, thus far, has been fairly measured
Eurozone April inflation matched the increase the market was expecting, notably core which now stands at its highest level in 43 months. But this really flatters the overall picture given the increase in package holiday prices (notably in Germany) which lifted the recreation component of core this month, alongside an overall uptick in corresponding services.
Modest downside surprise on both headline and core but not really anything material. Underlying inflationary pressure remains well contained with the recent rebound driven largely by shelter. Ex-ing that out and inflationary pressures look even more contained.
Another downside surprise for inflation. While the headline y/y rate moved up to 1.49%, core PCE was flat on the month which took the y/y rate back down to just 1.553%. That’s enough to round it up to 1.6% on the wires but it’s still the lowest print since Sep 2017.
Modest downside surprise in the consumer price numbers but really not that significant. There is little underlying price pressure now the full effects of earlier sterling depreciation have washed through. The main variance continues to come from energy/fuel prices.
In 1969 the US population was 125mn smaller. You also need to go back to 1969 to find a lower jobless claims number.
Price data basically confirms what we knew, inflation is back in a moderating phase with dip in core highlighting that. Income a little below expectations but the underlying wage story remains constructive, so nothing to be concerned about. Although in terms of Fed priorities the pick-up in wage growth is not enough to offset broader demand concerns.
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