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365 matches for " cpi inflation":
The fall in CPI inflation to 2.6% in June, from 2.9% in May, greatly undershot expectations for an unchanged rate and it has made a vote by the MPC to keep interest rates at 0.25% in August a near certainty.
Since January 2015, Core CPI inflation has risen to 2.3% from 1.6%, propelled by a combination of accelerating rents, a substantial rebound in the rate of increase of healthcare costs, and a modest-- though unexpected--upturn in core goods prices. It's always risky, though, simply to extrapolate recent trends and assume you now have a clear guide to the future.
We expect August's consumer price figures, released on Wednesday, to show that CPI inflation declined to 2.4%, from 2.5% in July, matching the consensus and the Bank of England's forecast.
October's consumer price figures, released Tuesday, likely will show that CPI inflation increased to 3.1%, from 3.0% in September.
CPI inflation last Friday gave Japanese policymakers a break from the run of bad data, jumping to 0.9% in April, from 0.5% in March.
After soaring in the Spring, inflation has slipped back in the Summer. July's consumer prices report, released while we were away last week, showed that CPI inflation held steady at 2.6% in July, one -tenth below the consensus and three tenths below May's year-to-date peak.
We expect May's consumer prices report, released on Wednesday, to show that CPI inflation fell to 2.0% in May, from 2.1% in April.
We expect June's consumer prices report, released on Wednesday, to show that CPI inflation increased to 2.7%, from 2.4% in May, above the consensus, 2.6%, and the Bank of England's forecast, 2.5%.
CPI inflation was steadfast at 1.9% in March, undershooting the consensus and our forecast for it to rise to 2.0%.
January's consumer price report, released today, likely will show that CPI inflation jumped to 1.9%--its highest rate since June 2014--from 1.6% in December. Inflation will continue to take big upward steps over the coming months, as retailers pass on to consumers large increase in import prices and energy companies increase tariffs.
We expect April's consumer price figures, due on Wednesday, to show that CPI inflation leapt to 2.3%, from 1.9% in March, exceeding the MPC's 2.2% forecast in the latest Inflation Report.
August's consumer price figures caught everyone by surprise. CPI inflation increased to 2.7%, from 2.4% in July, greatly exceeding the consensus and the MPC's forecast, 2.4%.
Economists are evenly split on December's consumer prices report, due on Wednesday, with half expecting CPI inflation to fall to 2.1%, from 2.3% in November, and the other half expecting a 2.2% print.
CPI inflation held steady at 2.4% in October, undershooting the 2.5% consensus expectation and the MPC's forecast in this month's Inflation Report.
Japan's CPI inflation was unchanged in June, at 0.7%, despite strong upward pressure from energy inflation.
Japanese CPI inflation jumped to 0.7% in August from 0.4% in July. The ris e in prices over the last year, however, was mainly driven by food and energy.
CPI inflation fell to 2.3% in November--its lowest rate since March 2017--from 2.4% in October, and it remains on track to fall rapidly over the winter.
The pick-up in CPI inflation to 3.1% in November--its highest rate since March 2012-- from 3.0% in October, shouldn't alarm the MPC at this week's meeting.
RPI inflation picked up to a six-year high of 4.1% in December, from 3.9% in November, even though CPI inflation fell to 3.0%, from 3.1%.
China's CPI inflation rose to 2.1% in July, from 1.9% in June.
Today's consumer prices figures likely will show that CPI inflation increased to 3.1% in November, from 3.0% in October.
January's consumer price figures, due on Tuesday, likely will show that CPI inflation held steady at December's 3.0% rate.
The jump in CPI inflation to 2.7% in April, from 2.3% in March, was only partly to a temporary boost from the later timing of Easter this year. Indeed, inflation likely will rise further over the coming months as food, energy and core goods prices all continue to pick up in response to last year's depreciation of sterling.
Our forecast that CPI inflation will return to the 2% target by the end of 2018 sets us apart from the MPC and consensus, which expect a more modest decline, to 2.4%.
CPI inflation has undershot the consensus forecast six times this year, but surprised to the upside only twice.
Economists are divided evenly on whether Tuesday's consumer price figures will show that CPI inflation held steady at 2.9% or edged down to 2.8% in June.
The upward trend in CPI inflation likely reasserted itself in August, following a hiatus in the last two months due to the decline in oil prices.
March's consumer prices figures, released on Wednesday, are even more important than usual, as they are the last to be published before the MPC's next meeting on May 10.
Chinese prices largely moved in line with our expectations in September, according to yesterday's data.
September's consumer price figures helped to curb expectations that the MPC might raise Bank Rate again before the March Brexit deadline.
Friday's CPI data in the euro area confirmed our expectation that inflation jumped last month.
Inflation data in Germany remain up in the air following recent revisions and restatements of the underlying indices.
While Brexit news will dominate the headlines again--see here for why the odds remain against Mrs. May winning the third "meaningful vote"--February's consumer prices report is the highlight in this week's congested economic data calendar.
For the past six years, the PCE measure of core inflation has undershot the CPI version. The average spread between the two year-over-year rates since January 2011 has been 0.3 percentage points, and as far as we can tell most observers expect it to be little changed for the foreseeable future.
The April CPI report today will be watched even more closely than usual, after the surprise 0.12% month-to-month fall in the March core index. The biggest single driver of the dip was a record 7.0% plunge in cellphone service plan prices, reflecting Verizon's decision to offer an unlimited data option.
Analysts' forecasts for January's consumer prices report, released on Wednesday, are unusually dispersed.
Today brings a huge wave of data, but most market attention will be on the June CPI, following the run of unexpectedly soft core readings over the past three months.
CPI inflation surprised to the downside in April, falling to 0.3% from 0.5% in March. Both the consensus and ourselves expected the rate to hold steady. Nearly all of the surprise, however, was in airfares and clothing inflation, which were depressed, to a greater extent than we anticipated, by the shift in the timing of Easter and bad weather, respectively.
We expect today's consumer price figures to show that CPI inflation jumped to 0.9% in September, from 0.6% in August.
CPI inflation has been extremely stable this year, only breaking away from 0.3% in March due to the shift in the timing of Easter. June, however, should mark the beginning of a sustained upward trend in inflation, fuelled by rising prices for imports, raw materials and labour. Indeed, we think CPI inflation is on course to hit 3% in 2017, ensuring that the MPC provides additional stimulus only cautiously.
In September last year, headline CPI inflation stood at exactly zero. Today, we expect to see a 1.5% print, thanks mostly to the fading impact of falling energy prices.
Japan's CPI inflation jumped to 1.3% in August, from 0.9% in July.
Tokyo CPI inflation jumped to 1.5% in October, from 1.2% in September. That
Tokyo CPI inflation edged down to 0.4% in May, from 0.5% in April.
Our forecast that CPI inflation will shoot up to about 3% in the second half of 2017, from 0.6% last month, assumes that pass-through from the exchange rate to consumer goods prices will be as swift and complete as in the past. Our first chart shows that this relationship has held firm recently, with core goods prices falling at the rate implied by sterling's appreciation in 2014 and 2015.
The pullback in CPI inflation in June and continued slow GDP growth in Q2 mean that the MPC almost certainly will keep Bank Rate at 0.25% on Thursday.
The CPI inflation rate for non-energy industrial goods--core goods, for short--has tracked past movements in trade-weighted sterling closely over the last ten years, because virtually all goods in this sector are imported.
Not giving up on China's stimulus yet. China's PPI inflation will head higher this month. China's CPI inflation will peak soon.
Korea's Q1 GDP downgrade will fuel calls for a rate cut. CPI inflation in Korea should soon peak out. Ignore the uptick in Japanese monetary base; it's a one off.
China's manufacturing PMI was poised for major disappointment... the trade war impact is clear. Don't be fooled by the relative stability of China's non-manufacturing PMI. Japan's March unemployment uptick was early; April was payback. Japan's CPI inflation has peaked. Japan's industrial production ticks up after extreme weakness; don't hold your breath for the recovery. Japan's consumers in poor shape, but maybe it's not that bad. The upswing in Korean industrial production likely to take a breather this month. The BoK holds firm, despite rising calls for a rate cut.
Japan's CPI inflation has risen sharply in recent months, driven by non-core elements. The headline faces cross-currents in coming months, but should remain high, posing problems for BoJ policy.
The contribution of energy prices to CPI inflation is set to increase over the coming months, following the pick-up in Brent oil prices to $74 per barrel, from $65 at the beginning of March.
February's consumer price figures provided hard evidence that the import price shock, caused by sterling's depreciation last year, is filtering through faster than the MPC expected. We expect CPI inflation to continue to exceed the forecast set out in February's Inflation Report.
The period of surprisingly low inflation following sterling's plunge when the UK left the Exchange Rate Mechanism in September 1992 appears to challenge our view that inflation will overshoot the MPC's 2% target over the next couple of years. As our first chart shows, CPI inflation averaged just 2.5% in 1993 and 2% in 1994, even though trade-weighted sterling plunged by 15% and import prices surged.
April's consumer price figures, due on Wednesday, are set to show that CPI inflation has fallen, primarily due to the earlier timing of Easter this year than last. We
Japan's headline CPI inflation is set to edge down in coming months, thanks to non-core prices.
CPI inflation remained at 0.3% in February, below the consensus, 0.4%, and our own expectation, 0.5%. All the unexpected weakness, however, was in food and core goods prices, and past movements in commodity and import prices suggest that this will be fleeting
Japan's CPI inflation was unchanged, at 0.2% in February.
October likely was the peak in Japanese CPI inflation, at 1.4%, up from 1.2% in September. The uptick was driven by the non-core elements, primarily food.
CPI inflation rose only to 2.1% in April, from 1.9% in March, undershooting the 2.2% consensus and MPC forecasts, as well as our own 2.3% estimate.
February's consumer price figures, released tomorrow, are likely to show that CPI inflation has picked up again, perhaps to 0.5%--the highest rate since December 2014--from 0.3% in January. This will give the Monetary Policy Committee more confidence in its judgement that CPI inflation will be back at the 2% target in two years' time.
July's consumer price figures--published on August 15th, while we are on vacation--look set to show that June's drop in CPI inflation was just a blip. We think that CPI inflation ticked up to 2.7% in July, from 2.6% in June, on track to slightly exceed 3% toward the end of this year.
CPI inflation held steady at 3.0% in January, above the consensus by one tenth and thus pushing up the market-implied probability of a May rate hike to 65%, from 62% earlier this week.
At today's MPC meeting, the centre of gravity of the policy debate is likely to shift towards the merits of raising interest rates, rather than cutting them. CPI inflation rose from 0.3% in February to 0.5% in March, one tenth above the MPC's forecast in February's Inflation Report.
The worst phase of the squeeze on real wages is nearly over; CPI inflation looks set to peak at slightly above 3% in October, before falling back steadily to about 2% by the end of 2018.
Data over the weekend revealed a further slowdown in China's CPI inflation, to 1.5% in February, from 1.7% in January.
CPI inflation increased to 2.9% in May, from 2.7% in April, exceeding the no-change expectation of both the consensus and the MPC, as well as our own 2.8% forecast.
We expect today's consumer prices figures to show that CPI inflation picked up to 0.5% in May, from 0.3% in April, exceeding the 0.4% rate anticipated by both the consensus and the MPC, in last month's Inflation Report. We expect the increase to be driven by a jump in the core rate to 1.4%, from 1.2% in April.
April's consumer price figures, released on Tuesday, look set to reveal that CPI inflation jumped to 2.7%--its highest rate since September 2013--from 2.3% in March. Inflation likely will be driven up entirely by a jump in the cor e rate to 2.3%, from 1.8% in March.
December's consumer price figures, released on Tuesday, likely will show that CPI inflation fell more than most analysts expect.
January's CPI inflation of 1.8%, up from 1.6% in December, was one-tenth lower than anticipated by the consensus, the Bank of England and ourselves. The undershoot, however, was entirely due to a pull-back in clothing inflation which is unlikely to be sustained. Price pressures across the rest of the economy have continued to intensify, suggesting that CPI inflation still is on course greatly to exceed the 2% target later this year.
July's consumer price figures, due tomorrow, likely will bring early evidence that sterling's Brexit-driven depreciation already is pushing up inflation. We think that CPI inflation picked up to 0.6% in July from 0.5% in June, exceeding the consensus forecast for an unchanged reading. Experience of past depreciations suggests that July's figures likely won't be the last time the consensus is surprised by the speed of the rise in inflation.
The MPC's meeting on Thursday looks set to be a perfunctory affair. Signs that the economy has lost momentum this year, alongside downward surprises from CPI inflation in January and wage growth in December, mean the Committee won't give the idea of hiking rates a moment's thought.
May's consumer price figures, released today, will provide the first clean inflation read for three months, following the distortions created by this year's late Easter. Consensus forecasts and the MPC have underestimated CPI inflation regularly since the middle of last year, when the impact of sterling's depreciation began to push into the data.
If the CPI measure of core consumer goods inflation were currently tracking the same measure in the PPI in the usual way, core CPI inflation would now be at 2.3%, rather than the 1.7% reported in November.
Consumer price figures for March, released on Tuesday, likely will show that CPI inflation has taken another step up, probably to 0.4% from 0.3% in February. This should jettison lingering fears that the U.K. is mired in deflation and bolster the Monetary Policy Committee's conviction that inflation will hit the 2% target within the next two years.
Core CPI inflation has been 2.1-to-2.2% year-over- year for the past seven months, a remarkably stable run which likely will persist for a few more months.
March's consumer price figures, released tomorrow, look set to show that inflation's ascent was kept in check by the later Easter this year compared to last. Nonetheless, CPI inflation will take big upward strides over the coming months, and it likely will exceed 3% by the summer.
The MPC went against the grain last month by forecasting that CPI inflation would overshoot the 2% target if it raised Bank Rate as slowly as markets anticipated.
If sustained, sterling's recent depreciation looks set to drive CPI inflation up to about 3.5% by the end of next year.
May's consumer price figures, released on Wednesday, likely will show that CPI inflation held steady at 2.4%--matching the consensus and the MPC's forecast--though the risks lie to the upside.
Chinese CPI inflation trends point to diminishing wage growth, as the services sector begins to struggle with the influx of labour displaced by the industrial productivity drive.
CPI inflation in China surged to a five-month high of 2.3% in March, from 1.5% in February.
CPI inflation held steady at 2.3% in March, as we and the consensus had expected. Nonetheless, the consumer price figures boosted sterling and bond yields, as the details of the report made it clear that inflation is on a very steep upward path.
CPI inflation held steady at 3.0% in October, undershooting our forecast and the consensus by 0.1 percentage point and the MPC's forecast by 0.2pp.
Over the last decade, the MPC has underestimated the extent and duration of departures of CPI inflation from the 2% target. Inflation exceeded the MPC's expectations in the early 2010s, as policymakers underestimated the impact of sterling's prior depreciation and overestimated the role that slack would play in stifling price pressures. Inflation also undershot the MPC's forecast between 2014 and 2016, when sterling's appreciation reduced import prices.
The MPC predicted in last week's Inflation Report that CPI inflation eased to 0.3% in April, thereby fully reversing its increase in March to 0.5%. We think, however, the Committee is underestimating the strength of inflation pressures across the economy.
Core CPI inflation is heading for 2½% by the end of this year, and perhaps sooner. The trend in the monthly numbers is now a solid 0.2%, and that's before the weaker dollar arrests the decline in goods prices. Goods account for only a quarter of the core CPI, and right now they are the only part of the index under downward pressure. If--when--that changes, core inflation could rise quite rapidly.
We expect today's consumer price figures to show that CPI inflation remained at 1.0% in October, after jumping in September from 0.6% in August.
The fall in CPI inflation to 3.0% in December, from 3.1% in November, likely marks the first step in its journey back to the 2% target.
We agree with the consensus and the MPC that October's consumer prices report, released on Wednesday, will show that CPI inflation edged up to 2.5% in October, from 2.4% in September.
Core CPI inflation plunged in the aftermath of the crash, reaching a low of 0.6% in October 2010. It then rebounded to a peak of 2.3% in the spring of 2012, before subsiding to a range from 1.6-to-1.9%, held down by slow wage gains and the strengthening dollar, until late last year. Faster increases in services prices and rents lifted core inflation to 2.3% in February, matching the 2012 high, but it has since been unchanged, net.
July's consumer price figures, released on Wednesday, look set to show that CPI inflation rose to 2.5%, from 2.4% in June.
November's consumer price report likely will show that October's dip in CPI inflation was just a blip against a strong upward trend. We think that CPI inflation picked up to 1.1% in November, from 0.9% in October, in line with the consensus.
If you gave us $100, we'd put $90 on inflation, headline and core, being higher a year from now than it is today. Our view, however, is not universally shared, and some commentators continue to argue that the U.S. faces deflation risks. Exhibit one for this view is our first chart, which shows a high correlation between the PPI for finished goods prices and the CPI inflation rate, ex-shelter.
CPI inflation is on track to fall back to 2.0% in the winter and below the MPC's target thereafter, despite rising to 2.5% in July, from 2.4% in June.
Japan's CPI inflation jumped to 1.0% in December from 0.6% in November, driven by food prices.
The rapid fall in CPI inflation over the last two months challenges the MPC's view that sterling's 2016 depreciation will keep inflation above the 2% target for the next three years, and greatly undermines the case for another interest rate increase in May.
February's consumer price figures, released tomorrow, likely will show that CPI inflation fell to 2.8%--one tenth below the MPC's forecast--from 3.0% in January.
We have argued for some time that the revival in nonoil capex represents clear upside risk for GDP growth next year, but it's now time to make this our base case.
Since the Party Congress last month, China has made a number of bold moves in multiple policy fields, with a regularity that almost implies the authorities are working through a list.
The E.C.'s Economic Sentiment Indicator for the U.K., released yesterday, painted an upbeat picture of the economy's recent performance. The ESI picked up to 109.4 in February from 107.1 in January; its average level since 1990 is 100. February's reading was the highest since December 2015, and it slightly exceeded the E.U.'s average of 108.9.
Data released in recent weeks have confirmed that the Andean economies retained a degree of momentum in Q4, with inflation well under con trol.
Data and events have gone against the idea of further BoK policy normalisation since the November hike.
Last week the Chinese authorities issued a series of new measures to help with bank recapitalisation, and, we think, to supplement interbank liquidity.
At first glance, the U.K. consumer price data show a perplexing absence of domestically generated inflation.
A series of events have forced markets and analysts to re-evaluate their assumption that Bank Rate will remain on hold throughout 2017. First, the minutes of the MPC's meeting had a hawkish tilt.
The CPIH--the controversial, modified version of the existing CPI that includes a measure of owner occupied housing, or OOH, costs--will become the headline measure of consumer price inflation when February's data are published on March 21.
The rise in oil prices to a four-year high of $82 will slow the pace at which inflation falls back over the next year only modestly.
The forward-looking indices of China's Caixin manufacturing PMI for April attracted more attention than the headline, which was a bit of a non-event; it rose trivially 51.1, from 51.0 in March.
A rate hike today would be a surprise of monumental proportions, and the Yellen Fed is not in that business. What matters to markets, then, is the language the Fed uses to describe the soft-looking recent domestic economic data, the upturn in inflation, and, critically, policymakers' views of the extent of global risks.
The Governor's comments late last week successfully recalibrated markets, which had concluded that a May rate hike was virtually certain, despite the MPC's deliberately vague guidance.
Japanese services price inflation edged down in May as the twin upside drivers of commodity price inflation and yen weakness began to lose steam. We expect wage costs to begin edging up in the second half but this will provide only a partial counterbalance.
China's annual "two sessions" conference is due to start on Sunday, with the economic targets for this year set to be made official over the course of the meetings.
Equity prices for companies dependent on the U.K.'s residential property market tumbled yesterday as several companies reported poor results for the first half of 2017. Most companies blamed a decline in housing transactions for falling profits.
Taken at face value, the preliminary estimate of Q2 GDP suggests that the economic recovery weathered Brexit risk well. But growth received support from some unsustainable sources, and also probably was boosted by a calendar quirk. Meanwhile, with few firms or consumers expecting a vote for Brexit prior to the referendum, Q2's brisk growth tells us little about how well the economy will cope in the current climate of heightened uncertainty.
The MPC likely will vote unanimously to keep Bank Rate at 0.75% on Thursday.
Both the E.U. and the U.K. government have been keen to emphasise, since the Withdrawal Agreement was provisionally signed off, that March 29 is a hard deadline for Brexit.
The preliminary estimate of Q4 GDP was unambiguously strong and has forced us to modify our view of the likely timing of the next interest rate increase.
The MPC made a concerted effort yesterday with its forecasts to signal that it is committed to raising Bank Rate at a faster rate than markets currently expect.
We want to revisit remarks from Fed Vice-Chair Clarida last week.
The national accounts, released today, likely will restate that quarter-on-quarter GDP growth held steady at 0.4% in Q4.
The persistence of no-deal Brexit risk has taken a toll on confidence across the economy over the last month.
The preliminary estimate of Q3 GDP, showing quarter-on-quarter growth slowing only to 0.5% from 0.7% in Q2, has kiboshed the chance that the MPC cuts Bank Rate next Thursday.
The minutes of the MPC's meeting in June indicated that several members' patience for tolerating for above-target inflation is wearing thin.
The U.K. economy retained its momentum last year, despite the seismic shock of the vote to leave the EU. Quarter-on-quarter GDP growth averaged 0.5% in the first three quarters of 2016, matching 2015's rate and the average pace of growth across the Atlantic.
The Chancellor indicated yesterday that the current fiscal plans--which set out a 1% of GDP reduction in the structural budget deficit this year--will remain in place until a new Prime Minister is chosen by September 2. So for now, the burden of leaning against the imminent downturn is on the MPC's shoulders.
The second estimate of Q3 GDP last week confirmed that the Brexit vote didn't immediately drain momentum from the economic recovery. But it is extremely difficult to see how growth will remain robust next year, when high inflation will cripple consumers and the impact of the decline in investment intentions will be felt.
The Bank of Korea finally pulled the trigger, raising its base rate to 1.75% at its meeting on Friday. After a year of will-they-or-won't-they, five of the Monetary Policy Board's seven members voted to add another 25 basis points to their previous hike twelve months ago.
The absence of hawkish undertones in the minutes of the MPC's meeting or in the Inflation Report forecasts took markets by surprise yesterday. The dominant view on the Committee remains that the economy will slow over the next couple of years, preventing wage growth from reaching a pace which would put inflation on trac k permanently to exceed the 2% target.
Why should Japan, the U.S., the Euro Area, the U.K. and Japan all have the same inflation target?
The Bank of England will be dragged into the political arena on Thursday, when it sends the Treasury Committee its analysis of the economic impact of the Withdrawal Agreement and the Political Declaration, as well as a no-deal, no- transition outcome.
The speed of sterling's rally this month has caught us by surprise.
The rate of increase of the financial services and insurance component of the PCE deflator has slowed from a recent peak of 5.8% in May 2014 to 3.3% in June this year. This matters, because it accounts for 8.4% of the core deflator, a much bigger weight than in the core CPI.
After pricing-in the consequences of sterling's depreciation for inflation last year only slowly, markets are at risk of costly inertia again.
Sterling's renewed depreciation to just €1.10--just below last year's nadir--has fuelled speculation that it could reach parity against the euro within the next year.
We suspect that under the calm surface of the BoJ, a major decision is being debated.
The chances of the first phase of the Brexit saga concluding soon declined sharply last week.
Today's preliminary estimate of Q4 GDP likely will show that the Brexit vote has not caused the economy to slow yet. But growth at the end of last year appears to have relied excessively on household spending, which has been increasingly financed by debt. GDP growth likely will slow decisively in Q1 as the squeeze on households' real incomes intensifies.
The BoJ left policy unchanged yesterday, but we noted some significant additions and modifications in the statement and the press conference.
A robust April payroll number today is a good bet, but a gain in line with the 275K ADP reading probably is out of reach.
The second estimate of GDP left the estimate of quarter-on-quarter growth unrevised at 0.3%, a trivial improvement on Q1's 0.2% gain.
China's 2018 property market boomlet let out more air last month.
The intensity of the pressure on households' finances was highlighted last week by December's retail sales report, which showed that volumes fell by 1.5% month-to-month, the most since June 2016.
Chinese GDP numbers always require a great deal of detective work, and yesterday's needed more than the norm; multiple rounds of revisions needed decoding.
The Monetary Policy Board of the Bank of Korea yesterday left its benchmark base rate unchanged, at 1.75%, at its first meeting of the year.
The stand-out news yesterday was the increase in the headline, three-month average, unemployment rate to 4.4% in December, from 4.3% in September.
Slack in the labour market no longer is being absorbed and wage growth still is struggling for momentum, placing little pressure on the MPC to rush the next rate rise.
Unlike other central banks, the MPC has stuck to its message that "an ongoing tightening of monetary policy over the forecast period" likely will be required to keep inflation close to the 2% target, provided a no-deal Brexit is avoided.
The second estimate of Q1 GDP made for grim reading. Quarter-on-quarter GDP growth was revised down to 0.2%--the joint-slowest rate since Q4 2012--from the preliminary estimate of 0.3%.
China's September activity data, released at the end of last week, back up our claim that GDP growth weakened in Q3, on a quarter-on-quarter basis.
Japan's all-industry activity index fell 0.5% month-on- month in September after a 0.2% rise in August. Construction activity continued to plummet, with the subindex dropping 2.3%, after a 2.2% fall in August.
Expectations that the MPC will raise Bank Rate again soon have taken a big knock over the last two weeks.
The Monetary Policy Committee chose to keep its options open in the minutes of this week's meeting, rather than signal as clearly as it did last year that interest rates will rise very soon.
China's real GDP growth officially slowed to 6.5% year-over-year in Q3, from 6.7% in Q2.
Forecasting BoJ policy for this year is trickier than it has been in a long time.
Sterling jumped last week to its highest level against the dollar since last October in response to news that a general election will be held on June 8. Markets are betting that the Conservative Government will sharply increase its majority, enabling Theresa May to ignore Eurosceptic backbenchers when she strikes a deal with the EU.
Mark Carney's assertion that "now is not yet the time to raise rates" fell on deaf ears last week. Markets are pricing-in a 20% chance that the MPC will increase Bank Rate at the next meeting on August 3, up from 10% just after the MPC's meeting on June 15, when three members voted to hike rates.
The Eurozone has come under the spotlight for its growing external surplus, but domestic households have been doing the heavy lifting for GDP growth in this business cycle. During the last four quarters, consumers' spending has boosted year-over-year GDP growth by an average of 1.0 percentage points, in contrast to a 0.4pp drag from net exports.
The core economic narrative in U.S. markets right now seems to run something like this: The pace of growth slowed in Q1, depressing the rate of payroll growth in the spring. As a result, the headline plunge in the unemployment rate is unlikely to persist and, even if it does, the wage pressures aren't a threat to the inflation outlook.
This was supposed to be the year that wage growth finally would pick up and signal clearly to the MPC that the economy needs higher interest rates.
February's consumer price figures, released yesterday, put more pressure on the MPC to stick to its plans for an "ongoing" tightening of monetary policy, despite the uncertainty created by the Brexit chaos.
We have been asked recently why we rarely talk about the signal from the U.S. money supply numbers, in contrast to the emphasis we give to real M1 growth in our forecasts for economic growth in both the Eurozone and China.
Political turmoil in Brazil continues to undermine President Dilma Rousseff's leverage over the economy. On Friday, the Lower House of Congress voted to start impeachment proceeding against Ms. Rousseff. She has until early April to present her defense against charges that she doctored government accounts and used graft proceeds to fund the 2014 electoral campaign.
China's National People's Congress yesterday laid out its main goals for this year, on the first day of its annual meeting.
The NFIB survey of small businesses today will show that July hiring intentions jumped by four points to +19, the highest level since November 2006. The NFIB survey has been running since 1973, and the hiring intentions index has never been sustained above 20.
Good news keeps on coming from Mexico, and the outlook is still favourable. Overall inflation pressures remain subdued and the domestic economy remains reasonably solid, despite a modest slowdown in recent months. Job creation remains robust, and real wages have been growing at a solid, non-inflationary pace.
No single measure of labor demand is always a reliable leading indicator of the official payroll numbers, which is why we track an array of private and official measures.
Two fiscal deadlines are on the near-horizon.
The Monetary Policy Committee of the Reserve Bank of India shocked most forecasters yesterday, including us, with a 4-to-2 majority voting in favour of a 25-basis point rate cut.
Japan's services sector PMI last week was disappointing.
In the midst of heightened and potentially longerlasting Brexit uncertainty, the MPC revised down its forecast for GDP growth sharply yesterday and came close to endorsing investors' view that the chances of a 25bp rate hike before the end of this year have slipped to 50:50.
We're expecting to learn this morning that productivity rose by a respectable 1.7% in the year to the fourth quarter, the best performance in nearly four years.
In his second confirmation hearing, Governor Kuroda continued his dance with markets, dialling down the exit talk.
Yesterday's Brazilian industrial production data continue to tell a story of a slow business cycle upturn. Output rose 0.2% month-to-month in November, after a downwardly revised 1.2% plunge in October. The year-over-year rate, though, jumped to -1.1%, from -7.3% in October. The underlying trend is now on the mend, following weakness in Q3 and early Q4. Output rose in November three of the four major categories and in 13 of the 24 sectors.
The run of above-consensus news on the U.K. economy came to an abrupt end last week, as a series of survey indicators for January took a turn for the worse. After six months of breathing space, the economic consequences of the Brexit vote are increasingly being felt.
If 2017 really is the year of "reflation", somebody forgot to tell the gilt market. Among the G7 group, 10-year yields have fallen only in the U.K. during the last three months, as our first chart shows.
With a no-deal Brexit still a potential outcome and just over five weeks to go until the U.K. is scheduled to leave, it's about time we put some numbers on how high inflation could get in this worst-case scenario.
If the Chancellor is true to his word, Wednesday's Budget will be a pedestrian affair with few major policy changes designed to prevent the economy from slowing this year. In an article in The Sunday Times, Philip Hammond asserted that "we cannot take our foot off the pedal" in the mission to eliminate the budget deficit by the end of the next parliament.
Japan's average year-over-year wage growth slowed sharply in May, but this mainly was a correction of the April spike.
Favourable inflation conditions in Mexico remain in place with June consumer prices increasing just 0.1% month-to-month, unadjusted, better than expected. A modest gain in core prices was largely offset by falling non-core prices, so year-over-year inflation edged down to 2.5% from 2.6% in May.
Many observers hoped that the silver lining of a slowdown in house price growth this year would be that more first-time buyers could step onto the first rung of the housing ladder. Instead, purchasing a first home has become even harder for FTBs with modest deposits.
The first round of trade talks between the U.S.and China kicked off in Beijing on Monday, marking the first face-to-face meeting between the two sides since Presidents Donald Trump and Xi Jinping struck a "truce" in December.
Sterling was the worst performing G10 currency in 2016 and most analysts anticipate further weakness in 2017. The cost of purchasing downside protection for sterling over the next year also continues to exceed upside protection, as our first chart shows.
The only way to read the December NFIB survey and not be alarmed is to look at the headline, which fell by less than expected, and ignore the details.
The Chancellor lived up to his reputation for fiscal conservatism yesterday and is pressing ahead with a tough fiscal tightening. He hopes that this will create scope to loosen policy if the economy struggles after the U.K. leaves the EU in 2019, but we remain concerned his "fiscal headroom" will be much smaller than he currently anticipates.
Japan's services PMI points to Q2 GDP contraction. China's Caixin services PMI highlights the reasons for official concern over employment. Korea's current account slips into deficit for the first time since 2012.
This week's Inflation Report--now released alongside the MPC's decision and minutes of its meeting in a deluge of releases now known as "Super Thursday"--is likely to be a damp squib.
The MPC signalled yesterday that it is actively considering a May rate hike, stating that rates likely will "...need to be tightened somewhat earlier and by a somewhat greater degree over the forecast period than anticipated at the time of the November Report".
The recovery in small business sentiment since the fourth quarter rollover has been extremely modest, so far.
This week's MPC meeting and Inflation Report likely will support the dominant view in markets that the chances of a 2017 rate hike are remote, even though inflation will rise further above the 2% target over the coming months. Overnight index swap markets currently are pricing-in only a 20% chance of an increase in Bank Rate this year.
The Chancellor's Budget today looks set to prioritise retaining scope to loosen policy if the economy struggles in future, rather than reducing the near-term fiscal tightening. In November, the OBR predicted that cyclically-adjusted borrowing would fall to 0.8% of GDP in 2019/20, comfortably below the 2% limit stipulated by the Chancellor's new fiscal rules.
With little reason to doubt that interest rates will remain at 0.50% on Thursday, focus has turned to what signal the MPC will give about future policy, via its economic forecasts and commentary.
The 10.3% year-over-year decline in private new car registrations in April likely is not a sign that the trend in either vehic le sales or consumers' overall spending is taking a turn f or the worse.
Most investors remain convinced that the MPC will raise Bank Rate when it meets next, on May 10.
Japan's average monthly labour earnings growth tumbled to 0.9% year-over-year in August, from 1.6% in July. This is not a disaster.
The slump in the Markit/CIPS services PMI in November to its lowest level since July 2016 provides the clearest indication yet that uncertainty about Brexit has driven the economy virtually to a stand-still.
The MPC's view that the economy likely will grow at an above-trend rate over the coming quarters was challenged immediately last week by the PMIs.
Cast your mind forward to late October 2018. The Fed is preparing to meet next week. What will the economy look like? The key number is three.
Yesterday's November inflation reports from Germany and Spain suggest that today's data for the Eurozone as a whole will undershoot the consensus.
Japanese retail sales were unchanged in October month-on-month, after a 0.8% rise in September.
The MPC likely will raise interest rates on Thursday, for the first time since July 2007, in response to the uptick in GDP growth and the upside inflation surprise in Q3.
December's money and credit figures suggest that households are in no fit state to step up and drive the economy forwards this year.
Markets still see a near-40% chance of the MPC raising Bank Rate by the end of this year--the same as at the start of this week--despite the notable absence of comments from the Committee yesterday aimed at preparing the ground for a near term hike.
The jobless rate fell back to 2.8% in June after the surprise rise to 3.1% in May. This drop takes us back to where we were in April before voluntary unemployment jumped in May.
Investors have concluded that Italy's political crisis will compel the U.K. MPC to increase interest rates even more gradually than they thought previously.
Markets' expectations for official interest rates have shifted up over the last fortnight, and the consensus view now is that the MPC will hike rates before the end of this year. As our first chart shows, the implied probability of interest rates breaching 0.25% in December 2017 now slightly exceeds 50%.
Markets were surprised yesterday by the absence of hawkish comments or guidance accompanying the MPC's decision to raise interest rates to 0.50%, from 0.25%.
The MPC restated its commitment to an "ongoing tightening of monetary policy" yesterday, but provided no new guidance to suggest that the next hike is imminent.
China's official PMIs were little changed in August, with the manufacturing gauge up trivially to 51.3, from 51.2 in July and the non-manufacturing gauge up to 54.2, from 54.0.
The BoJ kept policy unchanged last week, but made a significant change to its communication, dropping its previous explicit statement on the timing for hitting the inflation target.
The minutes from Banxico's August 11 monetary policy meeting--in which Board members unanimously voted to keep rates on hold at 4.25%--confirmed that the bank's policy guidance remains broadly neutral. Subdued economic activity, favourable inflation and gradual fiscal consolidation explain policymakers' position.
Recently data from Argentina continue to signal a firming cyclical recovery. According to INDEC's EMAE economic activity index, a monthly proxy for GDP, the economy grew 4.0% year-over-year in June, up from an already-solid 3.4% in May.
Japan's labour market is already tight, but last week's data suggest it is set to tighten further.
Investors have revised down their expectations for interest rates since the November Inflation Report and now only a 50% chance of a 25bp hike in Bank Rate is priced-in by the end of this year.
China's National People's Congress is set to convene its annual meeting next week.
Brazil's external position continue to improve, but we are sticking to our view that further significant gains are unlikely in the second half, given the stronger BRL. For now, though, we still see some momentum, with the unadjusted trade surplus increasing to USD7.2B in June, up from USD4.0B a year earlier. Exports surged 24% year-over-year but imports rose only 3%.
The Prime Minister told the public to "face up to some hard facts" about Brexit in her speech on Friday, but she still clung to an unachievable vision of what Britain can hope to achieve.
When the BoJ tweaked policy back in July, we think the increase in flexibility in part was to lay groundwork for the BoJ to respond to the Fed's ongoing hiking cycle.
The run of consensus-beating activity measures and the pickup in leading indicators of inflation have led markets to doubt that the MPC really will follow up August's package of stimulus measures with another Bank Rate cut this year.
Headline GDP growth in Korea was revised down, to a seasonally-adjusted 0.6% quarter-on-quarter in Q2, from 0.7% in the preliminary report.
December's Markit/CIPS surveys for the manufacturing, construction and services sectors suggest that the economy ended 2017 on a lacklustre note.
The Caixin services PMI jumped sharply to 53.9 in December from 51.9 in November. All the PMIs picked up significantly, but we find this hard to believe and suspect seasonality is to blame, though the adjustment is tricky.
The Tankan survey powered ahead in Q2, pulling away from Q1 and mostly beating consensus. This confirms our impression of the strength of the recovery ,just as Prime Minister Abe's Liberal Democratic Party is trounced at the polls in Tokyo. The drubbing is understandable as the main benefits of Abenomics have gone to the business sector, at the expense of the household sector.
BanRep accelerated the pace of easing last Friday, cutting Colombia's key interest rate by a bold 50 basis points, to 5.75%. Economic activity has been under severe pressure in recent months. The economy expanded by only 1.1% year-over-year in Q1, following an already weak 1.6% in Q4.
We're relatively optimistic--yes, you read that correctly--on the outlook for the U.K. economy in 2019.
The MPC surprised markets and ourselves yesterday by the extent to which it abandoned its previous stance and is now emphasising inflation over growth risks.
Colombia's BanRep stuck to the script on Thursday by leaving the policy rate on hold at 4.25%.
The MPC's package of stimulus measures, which exceeded markets' expectations, demonstrates that it is currently placing little weight on the inflation outlook. Even so, if inflation matches our expectations and overshoots the 2% target by a bigger margin next year than the MPC currently thinks is acceptable, it will have to consider its zeal for more stimulus.
Modern Money Theory has come up at two consecutive BoJ press conferences.
Markets are beginning to grasp that President-elect Trump's economic plans, if implemented in full--or anything like it--will constitute substantial inflationary shock to the U.S.
The case for continuing to increase Bank Rate gradually--recently reiterated by MPC members Andy Haldane and Michael Saunders-- strengthened yesterday with the release of April's labour market report, which revealed renewed momentum in wage growth.
One critical point emerged from last week's otherwise uneventful BoJ meeting: Governor Kuroda said that the BoJ might "adjust" rates before hitting the 2% inflation target.
The absence of a hawkish slant to the MPC's Inflation Report or the minutes of its meeting suggest that an increase in interest rates remains a long way off.
Last week, the Chinese authorities were out in force, talking up the economy and markets, and bearing measures to support private firms.
The BoJ kept all policy measures unchanged at its meeting yesterday.
The E.U.'s decision to grant the U.K. a Brexit extension until October 31 does not extinguish the possibility that the MPC will raise Bank Rate before the end of the year.
The re-emergence of Chinese PPI inflation in 2016 was instrumental in stabilising equities after the 2015 bubble burst.
The MPC emphasised yesterday that its faith that interest rates need to rise further has not been shaken by recent downside data surprises.
If you had only the NFIB survey of small businesses as your guide to the state of the business sector, you'd be blissfully unaware that the economic commentariat right now is obsessed with the potential hit from the trade tariffs, actual and threatened.
At the time of writing, Mr. Trump reportedly is finalising plans to impose tariffs of up to 25% on a further $200B of imports from China.
It often is argued that the MPC will raise interest rates in November--even if the economic data are not pressuring the Committee to tighten--because markets would go into a tailspin if the MPC failed to meet their expectations.
Revisions to Japan's real GDP growth, on Monday, left Q2 blisteringly hot.
Small businesses remain extremely positive about the economy, but some of the post-election gloss appears to be wearing off. To be clear, the headline composite index of small business sentiment and activity in February, due this morning, will be much higher than immediately before the election, but a modest correction seems likely after January's 12- year high.
Yesterday, China finally retaliated against Mr. Trump's Friday tariff hikes, promising to increase tariffs on around $60B-worth of U.S. goods.
Markets are caught in a trade loop.
Chinese monetary conditions have tightened sharply in the past year. Conditions have stabilised in recent months but Fed policy normalisation implies the increase in the money stock should slow again in 2018.
May's consumer prices figures bolster the case for the MPC to sit tight and wait until next year to raise interest rates, when the economy should have more momentum.
Today's labour market report likely will show that employment continued to grow briskly over the summer, but that wage gains still are lagging well behind inflation.
Jim Bullard, the St. Louis Fed president, said last week that Phillips Curve effects in the U.S. are "weak", and that nominal wage growth is not a good predictor of future inflation.
Brexiteers have downplayed the economic consequences of a no-deal exit by arguing that a further depreciation of sterling would cushion the blow.
The core CPI rose only 0.1% in May, marking the fourth straight soft reading.
Japanese PPI inflation continues to be driven mainly by imported metals and energy price inflation. Metals, energy, power and water utilities, and related items, account for nearly 30% of the PPI.
The border security agreement between the U.S. and Mexico has strengthened hopes that the Sino- U.S. trade war will end soon.
China's PPI inflation rose again in June, to 4.7%, from 4.1% in May.
The government last week fired the starting gun for the contest to replace Mark Carney as Governor of the Bank of England.
The MPC's new inflation forecasts usually take centre stage on "Super Thursday" and provide a numerical indication of how close the Committee is to raising interest rates again.
On the heels of yesterday's benign Q3 employment costs data--wages rebounded but benefit costs slowed, and a 2.9% year-over-year rate is unthreatening--today brings the first estimates of productivity growth and unit labor costs.
The continued modest rate of increase in unit labor costs makes it hard to worry much about the near-term outlook for core inflation.
Sterling fell to $1.38, from $1.39, in the hour following the EU's publication of a draft Article 50 withdrawal treaty, which set out the practical consequences of the principles the U.K. agreed to in December.
A rebound in quarter-on-quarter growth in households' spending in Q2, following the slowdown to just 0.2% in Q1, looks less likely following April's money data.
Whatever you do, don't fret over the apparent loss of momentum in the wages numbers; it's a classic statistical head fake, as we pointed out in Friday's Monitor, before the report. When the 15th of the month--payday for people paid semi monthly-- falls after the employment survey week, the BLS fails properly to capture their income, and hourly earnings are under-reported.
The headline number in today's NFIB survey of small businesses probably will look soft. The index is sensitive to the swings in the stock market and we'd be surprised to see no response to the volatility of recent weeks. We also know already that the hiring intentions number dropped by four points, reversing December's gain, because the key labor market numbers are released in advance, the day before the official payroll report.
Experimental figures, released earlier this week, suggest that wages have increased at a faster rate than indicated by the average weekly earnings--AWE--data.
Mark Carney's assertion that "...some monetary policy easing will likely be required over the summer" is a clear signal that an interest rate cut is in the pipeline. But easing likely will be modest, due to the much higher outlook for inflation following sterling's precipitous decline.
Japan's regular wage growth continued to edge up in November, maintaining the rising trend. The headline is volatile, with growth in labour cash earnings rising to 0.9% year-over-year in November, up from a downwardly revised 0.2% in October.
Interest rate expectations continued to fall sharply last week.
Lacklustre economic data and persistent no deal Brexit risk mean that the MPC won't rock the boat at this week's meeting.
China's trade surplus appears modestly to be rebuilding, edging up to $34.0B in November, on our adjustment, from $33.3B in October. The recent trough was $24.B, in March.
Chinese PPI inflation fell to 4.9% in December, from 5.8% in November. The decline was expected, but underneath the slowdown in commodity price inflation, the rate of increase of manufacturing goods prices is slowing sharply too.
Yesterday's price data for China showed continued declines in both CPI and PPI inflation.
Neither the 33K drop in September payrolls nor the 0.5% jump in hourly earnings tells us anything about the underlying state of the labor market.
Donald Trump's victory casts a shadow of political uncertainty over what had appeared to be a decent outlook for the U.S economy. The U.K.'s trade and financial ties with the U.S., however, are small enough to mean that any downturn on the other side of the Atlantic will have little impact on Britain.
In an interview with Bloomberg on Friday, PBoC Governor Yi Gang hinted at the intended policy if the trade war escalates.
April's Retail Sales Monitor from the British Chambers of Commerce, released yesterday, provided a powerful signal that households' spending rebounded in April, following a terrible Q1.
China's money and credit numbers for April were a mixed bag. M2 growth merely inched down, to 8.5% year-over-year, from 8.6% in March, keeping its gradual uptrend intact.
On the face of it, our forecast of higher core inflation by the end of this year is seriously challenged by the recent data.
The near-term U.S. inflation outlook is benign, but it is not without risk.
The U.S. Commerce Department on Tuesday released a list of Chinese imports, with an annual value of $200B, on which it is threatening to impose a 10% tariff, after a two-month consultation period.
The MPC took an unprecedented step last week to pave the way for an interest rate rise.
It is a truth universally acknowledged that the RPI is a terrible measure of inflation. The ONS describes it as "very poor" and discourages its use.
A slew of Asian price numbers are due this Friday, and they will all likely show that price gains softened further in January.
June's consumer price figures threw a last minute curve-ball at the MPC ahead of its key meeting on August 2.
Markets currently see a 50/50 chance that the MPC will raise Bank Rate in August and will be looking for a strong signal on Thursday that the next meeting is "in play".
Chinese official headline data paint a picture of a strengthening economy in Q2. Our analysis shows a sharply contrasting picture. China's nominal GDP, real GDP and deflators are often internally inconsistent.
The headlines of China's August activity data are missing the real story in recent months.
We can't afford the luxury of believing China's year-over-year growth rates. Real GDP growth was 6.8% year-over-year in Q1, matching the rate in Q4 and Q3, and hitting consensus.
Take China's data dump last Friday with a pinch of salt, as Chinese New Year--CNY-- effects look to have distorted January's money and price data.
We became more confident last week in our call that GDP growth will hold up better than widely feared in the first half of 2019, following signs that consumers have maintained their happy-go-lucky mentality, despite the ongoing political crisis.
On the face of it, trade negotiations have deteriorated in the last week.
Investors awaiting today's interest rate decision might be a little unnerved to learn that the MPC has a track record of surprises.
August's money and credit figures show that households' incomes remain under pressure, indicating that the recent pick-up in growth in consumers' spending likely won't last.
The biggest surprise in the recent inflation numbers has been the surge in the PCE measure of hospital services costs, where the year-over-year rate has jumped to 3.8% in February, an eight-year high, from just 1.3% in September.
The 1.2% month-to-month fall in retail sales volumes in March undoubtedly was due mostly to the bad weather.
The national February inflation data are due this Friday, a couple of weeks after the Tokyo report, as usual.
The MPC's "Super Thursday" communications left markets a little more confident that interest rates will rise again in May, shor tly after the likely start of the Brexit transition period.
At the end of last year, China's Central Economic Work Conference set out the lay of the land for 2019. Cutting through the rhetoric, we think the readout implies more expansionary fiscal policy, and a looser stance on monetary policy.
The pronounced weakness of activity surveys conducted since the referendum and the Governor's guidance in June, reinforced by the minutes of July's MPC meeting, indicate that a rate cut on Thursday is virtually guaranteed.
Expectations are running high that the MPC will strike a more hawkish tone today in the minutes of this month's meeting and in the quarterly Inflation Report. Investors are pricing in a 45% chance of the MPC raising interest rates before the end of 2017, up from 30% before the last Report in November.
China's official PMIs paint a picture of robust momentum going into 2018 but we find this difficult to reconcile with the other data.
The economy slowed less than we expected in 2017.
The minutes of March's MPC meeting were more newsworthy than we--and the markets--expected. Kristin Forbes broke ranks and voted to raise Bank Rate to 0.50%, from 0.25%.
January's money and credit data broadly support our view that the economy still lacks momentum.
Brexit talks will dominate the headlines this week, with the focal point set to be a meeting of the European Council on Wednesday, where E.U. leaders might give the green light for an extraordinary summit next month to formalise the Withdrawal Agreement.
The MPC surprised markets, and ourselves, yesterday with the escalation of its hawkish rhetoric in the minutes of its policy meeting.
In yesterday's Monitor, we argued that if the upside risk in an array of core CPI components crystallised in January, the month-to-month gain would print at 0.3%, for the first time since August. That's exactly what happened, though we couldn't justify it as our base forecast. A combination of rebounding airline fares, apparel prices, new vehicle prices, and education costs conspired to generate a 0.31% gain, lifting the year-over-year rate back to the 2.3% cycle high, first reached in February last year.
The 20bp increase in 10-year yields over the past month doesn't live up to the hype; bondmageddon it was not.
Following Chinese retaliation against new U.S. tariffs last week, the U.S. responded last night, as promised, setting in train the process to slap tariffs on the remaining approximately $300B of imports from China.
The Fed's action, statement, and forecasts, and Chair Yellen's press conference, made it very clear the Fed is torn between the dovish signals from the recent core inflation data, and the much more hawkish message coming from the rapid decline in the unemployment rate.
The MPC will have to issue fresh, dovish guidance in order to satisfy markets on Thursday, which now think the Committee is more likely to cut than raise Bank Rate within the next six months.
Today's figures likely will bring the first real signs that the Brexit vote has had an adverse impact on the labour market. The employment balances of the key private-sector surveys weakened sharply in July, and recovered only partially in August. In addition, the three-month average level of job vacancies fell by 7K between April and July.
Manufacturing in the Eurozone had a slow start to the third quarter. Industrial production rose only 0.1% month-to-month in July, though the year-over-year rate was pushed up to 3.2% from a revised 2.8% in June.
Today's MPC meeting and minutes are the first opportunity for Committee members to speak out in over a month, now that election "purdah" rules have lifted.
Swap markets currently price-in RPI inflation falling to 3.0% this time next year, from 3.2% in November, before recovering to 3.8% at the start of 2020.
The MPC chose not to rock the boat yesterday, deferring any reappraisal of the economic outlook until its next meeting in early February.
Sterling weakened further yesterday as anxiety grew that PM Theresa May will indicate she is seeking a "clean and hard Brexit" in a speech today. This could mean the U.K. leaves the EU's single market and customs union, in order to control immigration, shake off the jurisdiction of the European Court and have a free hand in trade negotiations with other countries.
The most eye-catching aspect of December's consumer prices report was the pick-up in core inflation to 1.9%, from 1.8% in November, above the no-change consensus.
After four straight sub-consensus core CPI readings, we think the odds now favor reversion to the prior trend, 0.2%, over the next few months.
Sterling received a shot in the arm yesterday following the release of the minutes of the MPC's meeting, which revealed that three members voted to raise interest rates to 0.50%, from 0.25% currently. Markets and economists--including ourselves--had expected another 7-1 split, but Ian McCafferty and Michael Saunders switched sides and joined Kristin Forbes in seeking higher rates.
When the MPC last met, on November 2, it attempted to persuade markets that Bank Rate would need to rise three times over the next three years to keep inflation close to the 2% target.
China's activity data for May were a mixed bag, but they broadly paint a consistent picture of a slowdown in economic growth from the first quarter.
Japanese GDP growth in the third quarter corrected the imbalances of the second. Domestic demand took a breather after unsustainable growth in Q2, while net exports rebounded.
The MPC almost certainly will keep interest rates on hold today and likely won't give a strong steer on the outlook for policy in the minutes of its meeting, which are released at mid-day. On the whole, surveys of economic activity have been weak, indicating that GDP growth has slowed sharply in the second quarter.
Today's labour market figures likely will show that the Brexit vote has inflicted only minimal damage on job prospects so far. The unemployment rate likely held steady at 4.9% in the three months to September, and the risk of a renewed fall in unemployment appears to be bigger than for a rise.
September's consumer price figures likely will surprise to the downside, prompting markets to reassess their view that the MPC will almost certainly raise interest rates next month.
Chinese April retail sales growth slowed sharply in value terms, to 9.4% year-over-year, from 10.1% in March.
Now that the run of unfavorable base effects in the core CPI--triggered by five straight soft numbers last year--is over, we're expecting little change in the year- over-year rate through the remainder of this year.
Falling gas prices will make themselves felt in the November CPI data today, with a likely 4% seasonally adjusted decline enough to subtract 0.2% from the month-to-month change in the headline index. But gas prices plunged by 7.2% in November last year, so in year-over-year terms gas prices will push aggregate headline inflation up. We look for the rate to rise to 0.4%, up from 0.2% in October and zero in September. The same story will play out in January and February too, by which time the headline rate should have risen to 1¼%, assuming a crude oil price of about $35 per barrel.
January's CPI data contained no major surprises, even though the 1.8% headline rate undershot our forecast and the consensus by one tenth.
February's consumer price figures give the MPC reason to doubt the case for raising interest rates again as soon as May.
We have been hearing a good deal recently about the risk that the plunge in headline inflation will feed back into the labor market, keeping the pace of wage gains lower than they would otherwise have been and, therefore, slowing the pace of Fed tightening.
The headline CPI inflation rate almost certainly dipped below zero in September, barring a startling and deeply improbable surge in the core. We look for a 0.4% month-to-month headline drop, driven by an 11% plunge in gasoline prices, pushing the year-over-year rate to -0.3%. This is of no real economic significance, not least because hugely unfavorable base effects mean the year-over-year rate almost certainly will rise sharply over the next few months, reaching about 1¾% as soon as January.
The ONS published provisional new weights for the main components of the CPI on Tuesday. The changes boost our forecast for the average rate of CPI inflation this year by a trivial 0.03 percentage points.
Markets expect RPI inflation--which still is used to calculate index-linked gilt payments, negotiate wage settlements, and revalue excise duties--to rise to only 2.7% a year from now, from 1.6% in June. By contrast, we expect RPI inflation to leap to 3.5%. As we outlined in yesterday's Monitor which previewed today's numbers, CPI inflation likely will shoot up to 3% from 0.5% over the next year.
December's consumer price figures, released tomorrow, likely will reveal that CPI inflation rose to 1.4%--its highest rate since August 2014--from 1.2% in November. Inflation will take even bigger upward steps over the coming months as the anniversary of sharp falls in commodity prices is reached and retailers pass on hefty increases in import prices to consumers.
The strong dollar is pushing down goods prices, but not very quickly. As a result, the sustained upward pressure on rents is gradually nudging core CPI inflation higher. It now stands at 1.9%, up from a low of 1.6% in January, and even relatively modest gains over the third quarter will push the rate above 2% by year-end. We can't rule out core CPI inflation ending the year at a startling 2.3%.
October's consumer price figures, to be released tomorrow, look set to show CPI inflation easing to -0.2%, from -0.1%, below the no-change consensus and the lowest rate since March 1960. No doubt this will spark more hyperbolic headlines about the U.K.'s descent into pernicious deflation; ignore them. October's print will almost certainly represent the nadir and we think it will take only a year for CPI inflation to return to the MPC's 2% target.
January's consumer price data, released tomorrow, look set to reveal a third consecutive rise in CPI inflation, dampening speculation that the U.K. is stuck in a deflationary funk. Indeed, we think CPI inflation picked up to 0.4%, from 0.2% in December, above the consensus, 0.3%.
November's consumer prices figures, released tomorrow, look set to show that the U.K.'s spell of negative inflation has ended. CPI inflation is set to pick-up decisively over the coming months, even if oil prices continue to drift down. In fact, fuel prices likely will contribute to the pick-up in inflation from October's -0.1% rate. November's 1.5% fall in prices at the pump was smaller than the 2.3% drop in the same month last year, so the year-over-year rate will rise. Fuel's contribution to CPI inflation therefore will pick up, albeit very marginally, to -0.47pp from -0.50pp in October.
Markets were right to conclude that September's slightly weaker average weekly wage figures will have little impact on the MPC's decision on when to raise official interest rates. Fundamentally, wage pressures are building and likely will contribute to pushing CPI inflation back to its 2% target towards the end of 2016.
The year-over-year rate of core CPI inflation rose steadily from a low of 1.6% in January 2015 to 2.3% in February this year. At that point, the three-month annualized rate had reached a startling 3.0%. You could be forgiven, therefore, for thinking that the dip in core inflation back to 2.2% in March was an inevitable correction after a period of unsustainably rapid gains, and that the underlying trend in core inflation isn't really heading towards 3%.
We continue to expect core CPI inflation to drift up further over the course of this year, partly because of adverse base effects running through November, but it's hard to expect a serious acceleration in the monthly run rate when the rate of increase of unit labor costs is so low.
CPI inflation picked up to 0.5% in March, from 0.3% in February. The jump was entirely attributable to core inflation, which leapt to 1.5%--its highest rate since October 2014--from 1.2%. With core inflation on track to rise further over the next year, we continue to think that markets will be caught out by interest rate rises later this year.
August's consumer price figures, released today, likely will show that households' spending power is being increasingly eroded by rising inflation. We think CPI inflation picked up to 0.8%, from 0.6% in July, exceeding the consensus, 0.7%, for the third consecutive month.
The core CPI inflation rate rose in April to 2.1% from 2.0%, thanks to unfavorable rounding, despite the below consensus 0.14% month-to-month print.
Investors anticipate a shift up in the MPC's hawkish rhetoric today. After August's consumer price figures showed CPI inflation rising to 2.9%--0.2 percentage points above the Committee's forecast--the market implied probabilities of a rate hike by the November and February meetings jumped to 35% and 60%, respectively, from 20% and 40%.
The price of Brent oil has fallen sharply to $40 per barrel from about $50 just a month ago, and speculation is mounting that it could plunge to $20 soon. But CPI inflation should still pick up over coming months, provided oil prices remain above $30. And the absence of "second-round" effects of lower oil prices this year should reassure the Monetary Policy Committee that lower oil prices won't bear down on inflation over the medium-term.
In recent weeks Brazilian central bank officials have reinforced their message that they will continue fighting inflation with "determination and perseverance". CPI inflation is failing to subside, at least at the headline level, where the latest readings are very disappointing, and expectations have remained stubbornly high. And the BRL has fallen 13% year-to-date, posing further inflation threats ahead. All these factors mean that the BCB will increase its main interest rate yet again in July.
The upturn in core CPI inflation this year has passed by almost unnoticed in the markets and media. In the year to September, the core CPI rose 1.9%, up from a low of 1.6% in January. But that's still a very low rate, and with core PCE inflation unchanged at only 1.3% over the same period, it's easy to see why investors have remained relaxed. In our view, though, things are about to change, because a combination of very adverse base effects and gradually increasing momentum in the monthly numbers, is set to lift both core inflation measures substantially over the next few months.
CPI inflation dropped to 2.4% in April, from 2.5% in March, undershooting the no-change consensus and prompting many commentators to argue that the chances of an August rate hike have declined further.
The MPC looks set to raise Bank Rate to 0.75% on Thursday, from 0.50%, despite below-trend GDP growth in the first half of this year and rapidly falling core CPI inflation.
The big four LatAm economies, Brazil, Mexico, Colombia and Chile, released September inflation this week and the data showed three clear--and contrasting--trends. Inflation is accelerating in the Andes, whereas the headline rate hit another historic low in Mexico. Inflation in Brazil is still the depressing outlier, with annual CPI inflation hovering around 9.5% year-over-year in recent months, well above the rates of its regional peers. But it is close to peaking, at last.
The latest drop in crude oil prices me ans that sub-zero headline CPI inflation in the spring is now more likely than not. We expect a lurch down from November's 1.3% to 0.7% in December, then 0.3% in January. The rate will remain close to that level for the next few months before hitting zero in May and slipping into negative territory--just--in June and July.
February's consumer price report, released tomorrow, likely will show that CPI inflation has breached the MPC's 2% target for the first time since November 2013. Indeed, we think the headline rate jumped to 2.2%, from 1.8% in January, exceeding the 2.1% rate expected by the MPC and the consensus.
The consensus view on the Monetary Policy Committee, that it will take two years for CPI inflation to return to the 2% target, looks complacent. Leading indicators suggest that price pressures will return faster than both policymakers and markets expect. Interest rates are therefore likely to rise in the first half of 2016, even if the recovery loses momentum.
The closer we look at the data, the more convinced we become that the rollover in CPI physicians' services prices, which has subtracted nearly 0.1% from core CPI inflation since January, is a response to sharply higher Medicare part B premiums, especially for new enrollees.
December's consumer prices figures, released tomorrow, look set to show CPI inflation ticked up to 0.2% from 0.1% in November, despite the renewed collapse in oil prices. The further fall in energy prices this year means that the inflation print won't reach 1% until May's figures are published in June. But Governor Carney has emphasised that core price pressures will motivate the first rate hike--a focus he likely will reiterate in a speech on Tuesday-- meaning that a May lift-off is still on the table.
CPI inflation held steady at -0.1% in October, matching its lowest rate since March 1960. We had expected the rate to tick down to -0.2%, but the rebound in clothing inflation in October, following a period of discounting in September, was larger than we had anticipated. Looking ahead, we can be fairly confident that CPI inflation will pic k up sharply over the coming months.
Core CPI inflation was little changed last year, after rising in 2015. The year-over-year rate stood at 2.1% in November, unchanged from December 2015. We look for a trivial nudge up to 2.2% in today's December report, but our first chart makes it clear that the trend no longer is clearly rising. The key reason that progress has been slower than we expected is that the rate of increase of prices for core non-rent services has slowed since the middle of last year, as our second chart shows.
RPI inflation has declined in importance as a measure of U.K. inflation and was stripped of its status as a National Statistic in 2013. Yet it is still used to negotiate most wage settlements, calculate interest payments on index-linked gilts, and revalue excise duties. We have set out our above-consensus view on CPI inflation several times, including in yesterday's Monitor. But the potential for the gap between RPI and CPI inflation to widen over the coming years also threatens the markets' view that the former will remain subdued indefinitely.
A November interest rate rise is far from the done deal that markets still anticipate, even though CPI inflation rose to 3.0% in September from 2.9% in August.
Samuel Tombs has more than a decade of experience covering the U.K. economy for investors. At Pantheon, Samuel's research is rigorous, free of dogma and jargon, and unafraid to challenge consensus views. His work focuses on what matters to professional investors: The links between the real economy, monetary policy and asset prices. He has a strong track record of getting the big calls right. The Sunday Times ranked Samuel as the most accurate forecaster of the U.K. economy in both 2014 and 2018. In addition, Bloomberg consistently has ranked Samuel as one of the top three U.K. forecasters, out of pool of 35 economists, throughout 2018 and 2019. His in-depth knowledge of market-moving data and his forensic forecasting approach explain why he consistently beats the consensus. Samuel's work on Brexit goes beyond simply reporting developments and is always analytical and unbiased, enabling investors to see through the noise of the daily headlines. While his analysis points to a particular path that politicians will take, he acknowledges the inherent uncertainty and draws out the economic and financial market implications of all plausible Brexit scenarios. Samuel holds an MSc in Economics from Birkbeck College, University of London and an undergraduate degree in History and Economics from the University of Oxford. Prior to joining Pantheon in 2015, he was Senior U.K. Economist at Capital Economics. In 2011, Samuel won the Society of Business Economists' prestigious Rybczynski Prize for an article on quantitative easing in the UK. He is based in London but frequently visits our other offices. Recent key calls include: 2018 - Correctly forecast that GDP growth would slow and inflation would undershoot the MPC's initial forecast, prompting the Committee to shock investors and almost other economists by waiting until August to raise Bank Rate, rather than pressing ahead in May. 2017 - Argued that the MPC was wrong to expect CPI inflation to stay below 3% following sterling's depreciation. He also highlighted that economic indicators pointed to the Conservatives losing their outright majority in the snap general election.
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