April 6-12, 2024
Big news. As always, in the middle of the month – data on dynamics in the USA. US CPI (consumer inflation index) maximum for six months, +3.5% per year:
Рис. 1
At the same time, monthly growth remains at an unacceptable level for the Fed of +0.4%:
Рис. 2
The “pure” (without taking into account the highly volatile components of fuel and food) CPI has the same picture:
Рис. 3
The situation is similar with the PPI industrial inflation index:
Рис. 4
But the most interesting picture is with the price index for the full volume of industrial goods (remember, the PPI index is calculated for final goods in technological chains):
Despite the decline in industrial production and long-term deflation, the decline in prices has virtually ceased. Even here inflation shows itself.
Well, the consequences of this picture are in the last section of the Review.
Macroeconomics. UK GDP -0.2% per annum, 4th negative month in the last 5 months:
Рис. 6
Industrial production in Italy -3.1% per year, 13th monthly minus in a row:
Рис. 7
Industrial sales in Italy -3.1% per month, minus covid, this is a 6-year low:
Рис. 8
And -3.6% per year – the 10th minus in a row:
Рис. 9
Industrial output in Japan -0.6% per month after -6.7% a month earlier (this was an anti-record for 13 years, not counting Covid):
Рис. 10
And -3.9% per year, the 4th minus in a row and the 7th in the last 8 months:
Рис. 11
Capacity utilization for the third time repeated the worst indicator since 2011 (excluding Covid):
Рис. 12
Orders for machine tools and similar equipment in Japan -8.5% per year, 15th minus in a row:
Рис. 13
Japan Economic Observers Index weakest in 14 months:
Рис. 14
Output in the Swedish construction sector -4.7% per year, 13th negative in a row:
Рис. 15
Building permits in Australia are at their worst levels in 12-15 years:
Рис. 16
China CPI -1.0% per month, the worst dynamics in 4 years:
Рис. 17
Loans in yuan in China +9.6% per year, an anti-record for all 26 years of statistics:
Рис. 18
Small business optimism in the US is the worst since the end of 2012, the sales forecast is clearly in the negative:
Рис. 19
The ECB left rates at a 22-year peak of 4.5%, but is already threatening to start cutting them later. The Central Bank of New Zealand left monetary policy the same, as did the Central Bank of Canada and the Central Bank of South Korea.
The Argentine Central Bank cut the rate for the 3rd time in a row; in general, over the past 4 months, it has reduced it from 126% to 70%.
Main conclusions. Despite clear signs of rising inflation (and this despite tight monetary policy), Fed officials continue to insist that a rate cut is highly likely: “In my view, there is no urgency to adjust the interest rate given the strong labor market, strong consumer spending and slowdown the rate of inflation growth in recent months,” said San Francisco Fed President Mary Daly.
In fact, it is quite possible that this was a response to Larry Summers’ speech about the need to raise the rate: https://t.me/BIoomberg/28690. But taking into account the article by Summers & co, which we wrote about in the previous review, and taking into account the data on labor statistics noted by Powell’s subordinates (which we also wrote about), and, finally, taking into account the latest inflation data, we can say that Summers , most likely, right.
The trouble is that the political decision to reduce the rate in June, apparently, has been made. This is evidenced by the decision of savings banks Goldman Sachs and American Express to reduce deposit rates. And all this against the backdrop of extremely high rates on car loans:
High growth in consumer prices:
Sharp rise in mortgage costs:
Also the price of copper, which has updated a 2-year high and is approaching a record:
Рис. 23
The rise in the price of cocoa, which has tripled just since the beginning of the year:
Рис. 24
And, of course, the price of gold:
Рис. 25
In general, it is clear that it is difficult to make a good decision in such a situation. But cutting rates while ignoring economic data is also scary. Because this will inevitably cause a sharp rise in inflation and an acceleration of the stock market bubble (this has always happened in history). However, someone will always support political decisions:
“A rate cut by the Federal Reserve could lead to a slowdown in US inflation.”
This is a 180-degree turn offered to Bloomberg readers by J.P. Morgan Asset Management global strategist Jack Manley.
“A lot of what’s going on with inflation today can be linked very closely with the level of interest rates,” Manley said. “You slice and dice inflation and whether you’re looking at the headline number, whether you’re looking at the core number, you’re removing the goods equation — so much of it has to do with the rate environment.”
Such an analysis will show that housing prices are an important component of core inflation, and auto insurance plays a large role in core inflation, the expert noted. Home values and insurance rates directly reflect rate levels.
A funny situation arises, as in the case of the chicken and the egg. You’re not going to see meaningful downward pressure on shelter costs until the Fed lowers interest rates, mortgages come down to a more reasonable level, and supply comes back on line, because people are willing to step into that market,” Manley said.
https://www.bloomberg.com/news/newsletters/2024-04-08/us-inflation-is-actually-being-driven-by-higher-interest-rates-jpmorgan-says
Beautiful! It is possible to exclude all goods from the calculation of consumer inflation altogether. But the appearance of such “expert” opinions says a lot about the state of mind in the US expert community. And all this against the background of the ongoing structural crisis in the world. By the way, it has already been de facto recognized, since the recalculation of GDP according to Summers & Co shows a continuous decline in the US economy since the fall of 2021. What we wrote about then!
Taking this into account, we wish our readers, who knew the real situation long before the leadership of the Fed and other central banks, a pleasant weekend and a full working week!