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280 matches for " deflation":
Economic survey data have been upbeat recently, but key Eurozone data releases yesterday suggest the ECB will be under pressure to increase monetary policy stimulus further this month. The advance inflation estimate showed that the euro area slipped back into deflation in September, as inflation fell to -0.1% year-over- year, from +0.1% in August. The fall was mainly due to a 8.9% collapse in energy prices, though, and we are very confident the relapse is temporary.
Advance inflation data on Friday added to the gloom on the Eurozone economy. Reports from Germany, France, and Spain all surprised to the downside, indicating the euro area as a whole slipped back into deflation in February. Inflation in Germany dipped to 0.0% year-over-year in February, from 0.5% in January, and France slid back into deflation as the CPI index fell 0.2%, down from a 0.2 increase last month.
China's PPI deflation deepened in August, with prices dropping 0.8% year-over-year, after a 0.3% decline in July.
China is facing a nasty mix of spiking CPI inflation and ongoing PPI deflation.
The PBoC's quarterly monetary policy report seemed relatively sanguine on the question of PPI deflation, attributing it mainly to base effects--not entirely fairly--and suggesting that inflation will soon return.
Collapsing oil prices add fresh deflationary pressure on China.
Deflation officially arrived in the Eurozone yesterday as a 6.3% plunge in energy prices pushed the overall rate of inflation to -0.2% year-over-year in December, down sharply from 0.3% in November.
The Eurozone is back in headline deflation, increasing the pressure on the ECB to deliver further easing when it meets next week. Inflation fell to -0.2% in February, from +0.3% in January, depressed by energy and food prices.
Advance inflation data from Germany and Spain indicate that the Eurozone slipped into deflation last month, piling maximum pressure on Mr. Draghi later this month. Inflation in the euro area's largest economy fell to 0.2% year-over-year in December from 0.6% in November, driven by a 6.6% plunge in the energy component.
Advance inflation data from Germany and Spain yesterday indicate that the Eurozone slipped back into deflation in September. German inflation fell to 0.0% in September from 0.2% in August, and deflation intensified in Spain as inflation fell to -0.9% from -0.4% last month. This likely pushed the advance Eurozone estimate--released today--below zero. We think inflation fell to -0.1% in September, down from +0.1% in August. The fall will be due mainly to falling energy prices, and we continue to think that the underlying trend in inflation is stabilising, or even turning up.
Inflation in the Eurozone is under pressure from all angles, and data from France and Germany yesterday confirmed that the risk of outright deflation has risen significantly. In Germany, inflation fell to 0.6% yearover- year in November, and in France the CPI rose a paltry 0.3%.
Yesterday's EZ producer price data showed that deflationary pressures in the manufacturing sector are fading. The headline PPI index fell 0.2% month- to-month in August, pushing the year-over-year up to -2.1%, from a revised -2.6% July.
The downward pressure from factory-gate prices on Chinese industrial profits will continue to ease in the coming months.
Yesterday's price data for China showed continued declines in both CPI and PPI inflation.
PPI inflation in Asia looks set to go from bad to worse, following June's poor numbers, which showed that the weakness in commodity prices is feeding through quicker than expected.
China's official manufacturing PMI was little changed in January, ticking up to 49.5, from 49.4 in December, with the output and new orders sub-indices largely stable.
Eurozone September CPI data this week will show that inflation pressures remain weak, appearing to support the ECB's focus on downside risks. We think Eurozone inflation--data released Wednesday-- rose slightly to 0.2% year-over-year in September from 0.1% in August, as core inflation edged higher, offsetting weak energy prices. Looking ahead, structural inflation pressures will keep inflation well below the central bank's 2% target for a considerable period.
Last week's import price data, showing prices excluding fuels and food fell in January for the fourth month, support our view that the goods component of the CPI is set to drop sharply this year.
Today's official euro area manufacturing report will be a corker.
Inflation pressures in France eased in February, in contrast to the story in the rest of the EZ. Yesterday's report confirmed the initial estimate that inflation fell to 1.2% year-over-year in February, from 1.3% in January. The headline was hit by a crash in the core rate to a two-year low of 0.2%, from 0.7% in January.
The record 0.4% drop in the core CPI in April would have looked even worse had it not been for favorable rounding; it was just 0.002% away from printing at -0.5%.
Inflation in the euro area remains under pressure, with both the core and the energy components contributing to the downward trend evident in our first chart. Headline inflation fell to 0.3% year-over-year in November, from 0.4% in October, and we expect a further decline this month.
Final data today will likely confirm that German inflation was unchanged at 0.2% year-over-year in August. The increased drag from falling energy prices was likely offset by higher food prices, mostly fresh vegetables. Core inflation was likely stable at 0.9% year-over-year, with a marginal rise in consumer services inflation offset by a fall in net rent. Rents could fall further this year due to the implementation of caps in major cities, but we s till only have little evidence on how individual states will implement the new legislation.
CPI inflation in China is nearing a peak, with pork prices starting to stabilise. November's data confirm that PPI deflation in China has bottomed out. Japan's M2 growth looks exposed to a downward revision. Japan's machine tool orders refuse to turn.
Japan's PMI report bodes well for Q3, but points to headwinds thereafter. PPI deflation in Korea is unlikely to get worse than the August drop.
The RMB's run is slowing China's exit from PPI deflation. Pork prices are starting to cool, again, pulling down Chinese CPI inflation. M2 growth in Japan remains punchy, setting the stage for a Q3 bounce. Machine tool orders in Japan are finally turning the corner after a long-running slump. Like last year, don't read too much into the August surprise in Korea's jobs data.
Inflation data later today will likely show that the Eurozone fell into deflation driven primarily by the big plunge in oil prices since 2008. The consensus expects a 0.1% decline year-over-year, but we look for the CPI to fall slightly more, by 0.2%.
June moderation confirms May nadir in Chinese PPI deflation. Food price disinflation in China stalls in June. No signs of Japan's M2 growth spike tapering anytime soon. The surprise bounce in Japanese core machine orders was fairly narrow. Machine tool orders in Japan end Q2 on an encouraging note.
Japan's Q2 GDP growth was not all it's cracked up to be. M2 growth in Japan inched up in July, but trends at the margin have rolled over. China's July inflation uptick shows that the swine flu outbreak is nowhere near under control. China officially enters PPI deflation... but it shouldn't last beyond Q3.
The hit from oil prices has just started; CPI deflation is imminent in Korea. Korea's PMI descends further, but April could mark the low
Japan's labour market remains tight but will face persistent slackening from here. Caixin manufacturing on a tear. In the end, CPI deflation in Korea lasted just one month. October probably was the y/y trough in Korea's export slump. Business sentiment in Korea is recovering... albeit only slowly.
A two-tiered economic recovery is emerging in Japan. PPI deflation in Korea will soon bottom out
Outright CPI deflation in Japan is just around the corner
Chinese quarterly GDP growth was dire. China's industrial production was due an upward correction. China's retail sales data suggest that households took a Q3 battering. China's FAI growth shows no signs of turning. Japan's CPI avoids deflation.
PPI deflation should soon trough. Chinese food inflation takes off. Japan's tertiary index points to strong Q3 GDP growth.
Non-core crosscurrents in Japanese CPI cancelled each other out in June. Ignore the headline... The details of Korea's 20-day export in July weren't that bad. The end is in sight for PPI deflation in Korea.
China's manufacturing PMIs turn less grim, but look unsupported, for now. China's non-manufacturing PMI receives a one-off singles day boost. Japan's capex data suggests Q3 upgrade. Net trade is shaping up to be a drag on Q4 GDP, as Korean exports remained weak in November. Korea's exit from deflation is complete, thanks largely to more favourable base effects. Korea's PMI jumps in November... and that's before the likely sentiment boost from normalising ties with Japan.
This should be as high as it gets for Japanese inflation for a while, No significant economic damage from Japan's second wave, just yet, The recovery in Korean exports remains on track, PPI deflation in Korea eases for a second straight month
The BoJ's growth upgrade for fiscal 2020 is on the ambitious side, to say the least. Lunar New Year noise hit Korea's 20-day export print for January. Korea completes its exit from a brief and shallow spell of PPI deflation.
A trivial upgrade to Korea's Q1 GDP, CPI deflation in Korea will last for the rest of 2020, Monetary base growth in Japan continued to accelerate in May, as the rate of QE rose
Chinese production surprises in April, as catch-up growth and inventory build continue; Disappointing sales headline in China masks respectable short-term trends; Recovery in secondary investment in China still lagged behind tertiary capex; PPI deflation has largely bottomed out, but don't expect a quick exit
Evidence continues to build that Korea's August unemployment plunge was a fluke. October sales tax hike in Japan opens the door for a quicker exit from PPI deflation.
Big gains in the size of the labour force continue to flatter Korea's unemployment rate. Japan's exit from PPI deflation will be followed by only modest inflation.
Japan is creeping towards CPI deflation, but it should just about avoid it in Q4.
China still is on track for mild CPI deflation by Q4, PPI deflation in China has bottomed out , Core machine orders in Japan tank in the wake of the state of emergency, Adverse base effects from last year's tax hike will delay Japan's exit from PPI deflation, Surprise spike in Korea's unemployment rate makes sense given the plunge in jobs created
CPI inflation in China punches through the 3% target. PPI deflation in China should soon bottom out. Japan's rugby boost small in the face of pre-tax front loading. September machinery orders data seriously undermines Japan's "resilient capex" story.
PPI deflation in Korea looks set to deepen, and rapidly so.
Japan's tertiary index shows Q2 services strength was merely an April leap. Japan's PPI is slated for more deflation.
Japan's PPI set for another bout of deflation
Expect Chinese PPI deflation in the second half. China's CPI inflation faces non-core cross currents; services inflation still slowing. Unemployment in Korea held steady in June; the BoK will be chuffed about improving job growth. PPI deflation in Japan will persist until the end of the year.
The collapse in oil prices looks near-certain to pull Japan back into deflation in the next few months, though the BoJ normally looks through oil-induced swings in its target inflation measure.
The Eurozone limped out of headline deflation in October, with inflation rising to 0.0% from -0.1% in September, helped by higher core and food inflation. Energy prices fell 8.7% year-over-year, up trivially after a 8.9% drop in September, but base effects will push up the year-over-rate significantly in coming months. Core inflation edged higher to 1.0% from 0.9% in September, due to 0.1 percentage point increases in both non-energy goods and services inflation.
Another day, another sharp drop in the stock market, and another wavelet of commentary suggesting recession and deflation are just around the corner. We have no argument with the idea that the manufacturing sector could contract over, say, the next six months. But the other 88% of the economy--apart from the 1½% of GDP generated by oil extraction-- is benefiting from the strong dollar and cheap fuel.
Core inflation has risen, albeit modestly, in the past two months. The uptick, to 1.8% in March from 1.6% in January, has come as something of a surprise. The narrative in the media and markets remains, as far as we can tell, one of downward pressure on inflation and, still, fear of possible deflation.
We're very comfortable with the idea that the coronavirus is a broad deflationary shock to the U.S. economy.
The PBoC will find itself between a rock and a hard place in the coming months, as CPI inflation creeps further up towards its 3% target but PPI deflation deepens.
Inflation data last week confirmed that the spectre of deflation is slowly but surely encroaching on the euro area. In Germany, inflation slipped to 0.6% year-over- year in November, from 0.8% in October, and in the Eurozone as a whole the he adline rate declined to 0.3%, from 0.4% in September.
The Eurozone escaped deflation last month, and we doubt it will return in this business cycle. Inflation rose to 0.1% year-over-year in June, up from -0.1% in May; it was lifted chiefly by the gradual recovery in oil and other global commodity prices. Energy prices fell 6.5% in June, up from a 8.4% fall in May, and we think the recovery will accelerate in coming months.
The pressure on Chinese industrial profits continued to ease in August, looking at the further moderation in PPI deflation.
Japan's CPI inflation was stable at 0.2% in October, despite the sales tax hike, thanks to a combination of offsetting measures from the government and a deepening of energy deflation.
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.
Britain now looks set to flirt with deflation in the summer.
Eurozone manufacturing selling prices remain under pressure from deflationary headwinds. The PPI index, ex-construction, in the euro area fell 4.2% year-over-year in March, matching February's drop. Weakness in oil prices continues to drive the headline.
Korean exports show no signs of additional pain from Japan's trade salvo. PPI deflation takes hold in Korea.
The solid 0.2% increase in January's core CPI, coupled with the small upward revision to December, ought to offer a degree of comfort to anyone worried about European-style deflation pressures in the U.S.
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%.
U.S. inflation gauges are sliding toward negative territory for the first time in more than five years. But the oil-fueled tumble in prices is far from the kind of growth-sapping episodes of deflation that tend to worry economists
Germany's consumer price index fell 0.3% month-over-month in January. It's the first time the inflation rate went negative since September 2009. "Deflation has arrived," Pantheon Macroeconomics' Claus Vistesen said
Chief Eurozone Economist Claus Vistesen on Eurozone deflation
Inflation in Germany rebounded last month, rising to plus 0.1% year-over-year in May, from minus 0.1% in April. We think the economy has escaped the claws of deflation, for now. Household energy prices fell 5.7% year-over-year in May, up from a 6.3% decline in April, and the rate will rise further. Base effects and higher oil prices point to a surge in energy inflation in the next three-to-six months.
Are there any signs of a Chinese recovery yet? Freya Beamish discusses
Chief U.K. Economist Samuel Tombs on U.K. inflation
We can't yet know how bad the spread of the coronavirus from the Chinese city of Wuhan will be.
The BoJ kept its main policy settings unchanged yesterday, in another 7-to-2 split.
Yesterday's partial trade data for Korea showed that the downturn in exports softened to -13.3% year-over-year in August from -13.8% in July, based on the 20-day gauge.
The ECB pressed the repeat button yesterday. The central bank maintained its refinancing rate at 0.00%, and also kept the deposit and marginal lending facility rate at -0.4% and 0.25 respectively. The pace of QE was held at €60B per month, scheduled to run until the end of December, "or beyond, if necessary."
China's real GDP growth officially slowed to 6.5% year-over-year in Q3, from 6.7% in Q2.
For countries with developed non-banking funding channels, narrow money isn't necessarily a good predictor of GDP growth.
The newest cluster of Covid-19 in China has reignited concerns over a second wave. On June 11, Beijing confirmed its first infection in nearly 60 days, originating reportedly from Xinfadi market, a wholesaler which supplies about 80% of the capital's produce.
Investors will get what they want today from the ECB: additional easing in the form of government bond purchases. The central bank is likely to announce or pre-commit to sovereign QE and corporate bond purchases in a new program that will last at least two years.
Japan's headline CPI inflation is set to edge down in coming months, thanks to non-core prices.
Japanese trade remained in the doldrums in October, keeping policymakers on their toes as they repeat the refrain of "resilient" domestic demand.
Japan's flash Jibun Bank PMIs for July showed continued improvement, but only just.
GDP growth in Korea surprised to the upside in the fourth quarter, with the economy expanding by 1.2% quarter-on-quarter, three times as fast as in Q3, and the biggest increase in nine quarters.
The PBoC left its interest rate corridor, including the Medium-term Lending Facility rate, unchanged last Friday, but published the reformed Loan Prime Rate modestly lower, at 4.20% in September, down from 4.25% in August.
Yesterday's final EZ PMIs imply that growth in manufacturing slowed marginally in August. The PMI fell to 51.7, from 52.0 in July, trivially below the initial estimate, 51.8. Output and new orders growth declined, pushing down the pace of new job growth. But we think the hard data for industrial production in Q3 as a whole will be decent.
Barring a disaster, the four-year cyclical upturn in the euro area will continue in the coming quarters. Inflation is a lagging indicator and therefore should rise, and investors should be adjusting their mindset to higher interest rates. But the reality today looks very different. Final inflation data confirmed that the Eurozone inflation slipped to -0.2% year-over-year in February, from 0.2% in January.
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.
The BoJ is likely to stay on hold this week for all its main policy settings.
China's investment slowdown went from worrying to frightening in October. Last week's fixed asset investment ex-rural numbers showed that year- to-date spending grew by 5.2% year-over-year in October, marking a further slowdown from 5.4% in the year to September.
Rapidly increasing food inflation is creating all sorts of dilemmas for policymakers in Asia's giants.
A slew of Asian price numbers are due this Friday, and they will all likely show that price gains softened further in January.
The PBoC reduced its 14-day reverse repo by 5bp to 2.65% in a routine operation yesterday.
We expect today's consumer price figures to show that CPI inflation jumped to 0.9% in September, from 0.6% in August.
China's activity data yesterday made pretty uncomfortable reading for policymakers.
The Monetary Policy Board of the Bank of Korea voted yesterday to lower its policy base rate to 1.25%, from 1.50%.
Yesterday's final inflation data in France for September were misleadingly soft.
China's official real GDP growth likely slowed to 6.0% year-over-year in Q3, from 6.2% in Q2.
We are sticking to our view that the Eurozone's trade surplus will fall in the next six months, despite yesterday's upbeat report. The seasonally adjusted trade surplus leapt to a record high of €25.0B in September from revised €21.0B in August, lifted by an increase in exports and a decline in imports.
Bond markets in the euro area have been a calm sea recently relative to the turmoil in equities, credit and commodities. Following the initial surge in yields at the end of second quarter, 10-year benchmark rates have meandered in a tight range, recently settling towards the lower end, at 0.5%. Our outlook for the economy and inflation tells us this is to o low, even allowing for the impact of QE.
China's activity data outperformed expectations in November.
The beleaguered EZ car sector finally enjoyed some relief at the end of Q3, though base effects were the major driver of yesterday's strong headline.
Yesterday's ECB meeting was a snoozer, just as we predicted.
The People's Bank of China cut its seven-day reverse-repo rate yesterday, to 2.50% from 2.55%.
The bulk of China's PMIs were published over the weekend and yesterday, leaving only the Caixin services PMI on Wednesday.
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.
Friday's detailed euro area CPI report for December confirmed that inflation pushed higher at the end of last year. Headline inflation increased to 1.3% year-over- year, from 1.0% in November, lifted primarily by higher energy inflation, rising by 3.4pp, to +0.2%. Inflation in food, alcohol and tobacco also rose, albeit marginally, to 2.1%, from 2.0% in November.
The BoJ held firm, for the most part, during this year's bout of central bank dovishness.
Brace yourselves; GDP growth forecasts are being slashed left and right, as our colleagues take stock of the economic damage Covid-19 likely will inflict in the U.S. and across Europe, where outbreaks and containment measures have escalated significantly.
The national February inflation data are due this Friday, a couple of weeks after the Tokyo report, as usual.
Today's advance EZ PMIs will be watched more closely than usual.
CPI inflation in India jumped to 4.6% in October, from 4.0% in September, marking a 16-month high and blasting through the RBI's target.
The PBoC announced on Saturday that it will publish a new Loan Prime Rate, from today, following a State Council announcement last Friday.
It happened! Before Q1, Chinese GDP year-over- year growth had moved by no more than two tenths of a percentage point for years.
We anticipated that the G20 meeting at Osaka over last weekend would be a potentially important mark of thawing relations between China and the U.S., with the hotly awaited meeting between Messrs. Xi and Trump.
China's official manufacturing PMI was unchanged at 50.2 in December, marking a weak end to the year. But it could have been worse; we had been worried that the return to above-50 territory in November had been boosted by temporary factors. December's print allays some of those fears.
Japan's jobless rate was unchanged, at 2.4% in October, as the market took a breather after September's job losses.
Manufacturers in China continued to trudge along in May, with their post-lockdown recovery looking increasingly fragile.
We'll cover Friday's barrage of EZ economic data later in this Monitor, but first things first. We regret to inform readers that the ECB is behind the curve. Last week, Ms. Lagarde downplayed the idea that the central bank will respond to the shock from the Covid-19 outbreak.
All the evidence indicates that growth in Eurozone consumers' spending is slowing. We think data today will show that the advance GfK consumer sentiment index in Germany was unchanged at 9.5 in April, but the headline index does not correlate well with spending. The "business expectations" index is better, and while it likely will increase slightly, our first chart shows that it continues to signal a slowdown in consumers' spending growth.
China's September PMIs, most of which were released over the weekend, mark out a clear downtrend in activity since late last year.
Economists refer to two different types of forward rate guidance by central banks: Delphic and Odyssean. The former describes a "normal" situation, in which the central bank follows a transparent rate-setting rule allowing markets to forecast what it will do, based on the flow of economic data.
The Monetary Policy Board of the Bank of Korea yesterday voted unanimously to lower its base rate by 25 basis points to a record low of 0.50%.
Late last year, China said it would scrap residency restrictions for cities with populations less than three million, while the rules for those of three-to-five million will be relaxed.
The Nikkei services PMI for Japan partly rebounded in January, to 51.6, after it fell sharply to 51.0 in December.
The main story to emerge from China's Economic Work Report is the extent of tax cuts, which on our calculations will leave a large funding hole.
The collapse in global demand last month will have derailed China's trade recovery, causing exports to drop unpleasantly month-on-month after the bounce of around 45% in March; the January/February breakdown is not provided, so we can't be sure of the extent of the March rebound.
The PBoC finally moved yesterday, cutting its one-year MLF rate by 5bp to 3.25%, whilst replacing around RMB 400B of maturing loans.
Korea's manufacturing PMI fell for a fourth straight month in April, dropping to 41.6, which is the lowest reading since January 2009.
The BoJ has no good options, and its leeway for changes to existing policy instruments is limited.
Today's advance CPI data will show that EZ inflation pressures rose further at the end of Q3. The headline number likely will exceed the consensus. We think inflation rose to 0.5% year-over-year in September from 0.2% in August, slightly higher than the 0.4% consensus.
Korean exports hit a brick wall in April, unsurprisingly, as lockdowns across the non- China world dealt a body blow to demand.
We have spent the past few weeks shifting our story on the EZ economy from one focused on slowing growth and downside risks to a more balanced outlook. It seems that markets are starting to agree with us.
The downturn in global trade looks set to turn a corner, at least judging by the outlook for Korean exports, which are a key bellwether.
Our chief economist, Ian Shepherdson, set out our initial thoughts on the rising tensions between U.S. and Iran here.
It says a lot about investor expectations that markets' reaction to yesterday's policy announcement by the ECB was marked by slight "disappointment," with EURUSD rallying and EZ bond yields rising.
This will be as good as it gets for Japanese PPI
Japan's tertiary index remains below trend despite looming tax hike
Japan: Monetary base growth slowed to 2.8% y/y in August, from 3.7% in July. Bloomberg reports no consensus, Korea: Q2 GDP growth was revised down to 1.0% q/q, from 1.1% in the preliminary report, below the no-change consensus. • Korea: CPI inflation fell to 0.0% in August, from 0.6% in July, below the consensus, 0.2%.
China's PPI turning the corner. China's CPI inflation should peak this month ber's punchy trade data.
In Friday's Monitor we analysed the draft Japanese budget, as reported by Bloomberg. We suggested that the GDP bang-for-government-expenditure- buck is likely to be less than that implied by the authorities' forecasts.
Brazil's improving economic and political situation allowed the BCB to cut the Selic rate by 100bp to 8.25% at its Wednesday meeting, matching expectations.
Today's ECB meeting will follow the same script as in July. No-one expects the central bank to make any formal changes to its policy settings. The ECB will keep its main refinancing and deposit rates at zero and -0.4%, respectively.
The return to normal in the March payroll numbers, with a 196K headline increase, is another nail in the coffin of the "imminent recession" theory.
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.
The trade war with the U.S. has taken its toll on the RMB.
China's industrial profits data for August were a mixed bag.
Markets see a strong possibility, though not a probability, that the BoJ will cut rates on Thursday.
Japan's retail sales data--due out on Thursday-- have been badly affected by the October tax hike.
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.
China's finance minister Liu Kun provided his report on China's current fiscal situation to the legislature last Friday.
China's abysmal industrial profits data for October underscore why the chances of less- timid monetary easing are rising rapidly.
China's official real GDP growth slowed to 6.0% year-over-year in Q3, from 6.2% in Q2 and 6.4% in Q1. Consecutive 0.2 percentage points declines are significant in China.
Hong Kong delivered a resounding landslide victory to pro-Democracy parties in district council elections over the weekend.
The final numbers for China's balance of payments in the first quarter showed that the current account descended to a $34B deficit, from a surplus of $30B a year earlier.
Real GDP in Germany grew 0.7% quarter-on-quarter in Q4, thanks mainly to a 0.4% contribution from private consumption, and a 0.2% boost from net trade. Household consumption grew 2.2% annualised in 2014, the best year for German consumers since 2006.
Japan's headline inflation will be volatile for the rest of the year, thanks to movements in the noncore elements.
If Japan's flash PMIs for March are a sign of things to come, then the government really should get moving on fiscal stimulus.
The ECB will not make any major changes to policy today.
Tokyo CPI inflation edged down to 0.4% in May, from 0.5% in April.
Final May CPI data in the Eurozone today likely will confirm that inflation pressures edged marginally higher last month. We think inflation increased to -0.1% year-over-year, from -0.2% in April, as a result of slightly higher services inflation, and a reduced drag from falling energy prices.
This week's main economic data from Korea--the last batch before the BoK meets on the 16th--missed consensus expectations, further fuelling speculation that it will cut rates for a second time, after pausing in August.
China's PMIs show no sign of a recovery yet, but the authorities are sticking to the playbook; they've done the bulk of the stimulus and are waiting for the effects to kick in, but are recognising that they need to make some adjustments.
Advance country data indicate that headline EZ inflation fell slightly in June; we think the rate dipped to 1.3% year-over-year, from 1.4% in May.
Retail sales in Japan rose modestly in May, after collapsing in March and April, as the government tried to put a lid on the country's Covid-19 outbreak.
Last week we made a big call and further downgraded our China GDP forecasts for Q1; daily data and survey evidence suggested that our initial take, though grim, had not been grim enough.
One of the questions we have been asked recently is when inflation in the euro area will trough this year. This is difficult to answer without a look at the structural drivers of price pressures in Europe.
Our analysis of the Q3 activity and GDP data in yesterday's Monitor strongly suggests that China's authorities will soon ready further stimulus.
Monetary policy usually is the first line of defence whenever a recession hits.
China's economic targets are AWOL this year, thanks to Covid-19 disruptions to the legislative calendar... and because policymakers seem unsure of what targets to set in such uncertain times.
China's manufacturing PMIs put in a better performance in November, with the official gauge ticking up to 50.2 in November, from 49.3 in October, and the Caixin measure little changed, at 51.8, up from 51.7.
Japan's advance PMI numbers for August suggest that the economy dodged most of the bullets fired by the second wave of Covid-19.
Manufacturing data for the euro area's major economies point to renewed downside risks for GDP growth, despite the likely tailwind to consumption from low oil prices. November industrial production fell 0.1% and 0.3% month-to-month in Germany and France respectively, indicating that the manufacturing sector remains under pressure.
The People's Bank of China likely will be more than content with the latest money and credit data, to the point where it probably won't see the need to cut interest rates further anytime soon.
The Fed announced no significant policy changes yesterday, but the FOMC reinforced its commitment to maintain "smooth market functioning", by promising to keep its Treasury and mortgage purchases "at least at the current pace".
The clear threat to demand posed by the coronavirus and China's efforts at containment have sent a shock wave through commodities markets.
China's November money and credit data were a little less grim, with only M2 growth slipping, due to unfavourable base effects.
Markets tend to look to Italy as the canary in the coalmine for signs of stress in the EZ economy and financial markets, but we recommend keeping a close eye on Spain too.
China's October foreign trade headlines beat expectations, but the year-over-year numbers remain grim, with imports falling 6.4%, only a modest improvement from the 8.5% tumble in September.
Yesterday's ZEW investor sentiment report in Germany provided an upside surprise.
Core machine orders in Japan collapsed in April, as expected, falling by 12.0% month-on-month, worse than the minor 0.4% slip in March.
India's shocking PMIs for April leave little doubt that the second quarter will be bad enough to result in a full-year contraction in 2020 GDP, even if economic activity recovers strongly in the second half.
China faces three possible macro outcomes over the next few years. First, the economy could pull off an active transition to consumer-led growth. Second, it could gradually slide into Japan-style growth and inflation, with government debt spiralling up. Third, it could face a full blown debt crisis, where the authorities lose control and China drags the global economy down too
Markets are looking for the BCCh to remain on hold and the BCRP to ease on Thursday; we think they will be right. In Chile, the BCCh will hold rates because inflation pressures are absent and economic activity is stabilizing following temporary hits in Q1 and early Q2.
China concludes its annual Central Economic Work Conference today, where the economic targets and the agenda for next year are set.
China's trade balance flipped to an unadjusted deficit of $7.1B in the first two months of the year, from a $47.2B surplus in December.
Private consumption in Japan will take time to recover, even if some semblance of normality returns from this month.
Chinese data still are in the midst of Lunar New Year-related noise, so take February's PMIs with a pinch of salt, even though they ostensibly are adjusted for seasonal effects.
China's official manufacturing PMI edged down to 50.8 in April, from 52.0 in March. The output sub- index stayed relatively high, inching down only to 53.7 from 54.1, and chiming with our initial take on the industrial production data for March.
Advance data indicate German inflation rose to 0.4% year-over-year in November, up from 0.3% in October, lifted by higher food and energy price inflation. The upward trend in food prices won't last, but base effects in energy prices will persist, boosting headline inflation significantly in coming months. The details show that services inflation was stable at 1.2% last month, despite state data indicating a fall in volatile leisure and entertainment inflation, while net rent inflation was also stable, at 1.1%.
Trade talks between the U.S. and China officially resumed this week, with the first face-to-face meeting of the main negotiators taking place yesterday in Shanghai.
Inflation pressures in France eased across the board at the end of last year.
The BoJ yesterday kept the policy balance rate at -0.1%, and the 10-year yield target at "around zero", in line with the consensus.
The momentum in Chinese manufacturing waned in August, with the official manufacturing PMI slipping marginally to 51.0, from 51.1 in July,
The year-long surge in CPI inflation in China will soon end.
China's January trade data were scheduled for release on Friday, but instead, the customs authority delayed the publication, saying it would publish the numbers with the February data
Japan's GDP growth was revised up, to 0.4% quarter-on-quarter in Q3, from 0.1% in the preliminary reading.
Friday's manufacturing and trade data added to the evidence of a solid rebound in the EZ economy at the end of Q2, as lockdowns were lifted.
We have downgraded our 2019 and 2020 China GDP forecasts on previous occasions because monetary conditions have been surprisingly unresponsive to lower short-term rates.
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.
Yesterday's EZ manufacturing data were slightly underwhelming, at least compared to expectations.
China's industrial production grew at an annualised 7.2% rate by volume in Q1, according to our estimates, up from an average 5.9% rate in the six quar ters through mid-2016.
Yesterday's second estimate of Q4 Eurozone GDP confirmed the upbeat story from the advance report, despite the dip in headline growth.
Friday's sole economic report provided further clarity on the impact on Germany's inflation data from the Value-Added-Tax cut in July.
Today's CPI report from India should raise the pressure on the RBI to abandon its aggressive easing, which has resulted in 135 basis points worth of rate cuts since February.
Taken at face value, six of the eight opinion polls conducted over the seven days indicate that the U.K. will vote for Brexit on June 23. Our daily updated Chart of the Week, on page 3, shows the current state of play.
Yesterday's data provided further evidence of the EZ economy's response to the Covid-19 shock, though we recommend that investors take the numbers with a pinch of salt. In Germany, the final CPI report for April showed that headline inflation slipped to 0.9% year-over-year, from 1.4% in March, trivially above the first estimate, 0.8%.
Momentum in new EZ car sales improved slightly in the middle of Q3. New registrations in the euro area rose 6.8% year-over-year in August, accelerating marginally from a 5.3% increase in July.
ate last week, China and the U.S. reached an agreement, averting the planned U.S. tariff hikes on Chinese consumer goods that were slated to be imposed on December 15.
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.
China's September imports missed expectations, but commentators and markets tend to focus on the year-over-year numbers.
China's main activity data for October disappointed across the board, strengthening our conviction that the PBoC probably isn't quite done with easing this year.
Japan's PPI data yesterday confirmed that October was a turning point for prices--due to the consumption tax hike--despite the surprising stability of CPI inflation in Tokyo for the same month.
Data yesterday showed that industrial production in the Eurozone stumbled in May. Production fell 1.2% month-to-month, driven by weakness in all major economies and falling output in all sub-industries. The poor headline follows an upwardly revised 1.4% jump in April, which means that production rose marginally in the first two months of the second quarter.
Within the next few month, and perhaps as soon as next month, the gap between the headline NFIB and ISM manufacturing indexes, shown in our first chart, will close for the first time since late 2008.
We've been consistent in saying that Japanese capex would roll over this year, after strength in the first three quarters was seen by the authorities and many commentators as a sign of resilience.
Yesterday's EZ industrial production report conformed to expectations.
Inflation pressures in France increased significantly at the start of the year.
Data over the weekend revealed a further slowdown in China's CPI inflation, to 1.5% in February, from 1.7% in January.
China's money data continued to improve in April, bolstering the economy's recovery prospects.
Industrial production in the euro area dipped in February. Output fell 0.8% month-to-month pushing the year-over-year rate down to 0.8% from a revised 2.9% in January. This indicates that Eurozone manufacturing continues to lag the pace seen in previous business cycle upturns.
Japan's Q2 GDP was driven by the twin pillars of private consumption and capex.
We're doing a wrap-up of the data that were released last week while we were away, and the Chinese numbers were both a hit and a miss.
PM Abe last week asked the cabinet to put together a package of measures in a 15-month budget aimed at bolstering GDP growth through productivity enhancement, in addition to the shorter-term goal of disaster recovery.
Activity in the Eurozone industrial sector cooled at the end of the first quarter. Manufacturing production declined 0.8% month-to-month in March, pushing the year-over-year rate down to 0.2% from a revised 1.0% in February. Over Q1 as a whole, though, the story was positive.
Chief Eurozone Economist Claus Vistesen on Eurozone Inflation.
The drop in CPI inflation to 0.5% in May, from 0.8% in April, brought it another big step closer to the near-zero rate we foresee in the second half of this year.
Advance data from Germany and Spain indicate that Eurozone inflation rebounded in October. We think inflation rose to 0.2% year-over-year from -0.2%, and German data suggest the main boost will come from both core and food inflation. Inflation in Germany rose to 0.3% year-over-year from 0.0% in September, lifted by an increase in inflation of leisure and entertainment, hotels and durable goods. Food inflation also rose to 1.6% from 1.1% in September, due to surging prices for fresh fruit and vegetables.
Advance inflation data in the Eurozone will likely surprise to the upside today. The consensus forecast expects inflation to rise slightly to -0.5% year-over-year in February from -0.6% in January, but we expect a much bigger jump, to -0.2% year-over-year.
Detailed German inflation data today likely will confirm that inflation fell to 0.3% year-over-year in December from 0.4% in November, mainly due to falling food inflation. Preliminary data suggest that food inflation declined sharply to 1.4% from 2.3% in November, offsetting slower energy price deflation, due to base effects. Food and energy prices are wild cards in the next three-to-six months, and could weigh on the headline, given the renewed weakness in oil prices, and lower fresh food prices. Core inflation, however, is a lagging indicator, and will continue to increase this year.
Investors have been used to central bank policy as a source of low volatility in recent years, but the last six months' events have changed that. Uncertainty over the timing of Fed policy changes this year, an ECB facing political obstacles to fight deflation, and last week's dramatic decision by the SNB to scrap the euro peg have significantly contributed to rising discomfort for markets since the middle of last year.
With Russia and some other emerging economies now in full panic mode, the financial market story is sharply divided between two narratives. Either the plunge in global energy prices acts as positive catalyst by boosting real incomes and allowing most central banks to run easier monetary policy or it is a sign that risk assets are about to hit a deflationary wall.
Final inflation data yesterday confirmed Eurozone inflation pressures are still low. Inflation rose to 0.2% year-over-year in December from 0.1% in November, lifted by easing deflation in energy prices. Base effects likely will lift energy price inflation in January and February, but the year-over-year rate will dip in Q2, if the oil price remains depressed. Food inflation fell in December due to a decline in unprocessed food prices, and we see further downside in Q1. Core inflation was unchanged, with the key surprise that services inflation fell to 1.1% from 1.2% in November. We think this dip will be temporary, however, and our first chart shows that risks to services inflation are tilted to the upside.
Yesterday's final CPI data for May confirmed that the EZ economy is within touching distance of headline deflation.
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.
Yesterday's PMI reports repeated the message of a firm cyclical Eurozone recovery, despite investors' angst over deflation and the underwhelming Q3 GDP data earlier this month. The composite index in the zone rose to a 54-month high of 54.4 in November from 53.9 in October, lifted by strong output and solid new business growth. Our first chart shows the rise in the PMI points to slight upside risks in Q4 to the four quarter trend in real GDP growth of 0.4% per quarter.
Short-term interest rates in the Eurozone continue to imply that the ECB will lower rates further this year. Two-year yields have been stuck in a very tight range around -0.5% since March, indicating that investors expect the central bank again to reduce its deposit rate from its current level of -0.4%. This is not our base case, though, and we think that investors focused on deflation and a dovish ECB will be caught out by higher inflation.
The ECB sent a strong signal yesterday that it is ready to fight deflation with a full range of unconventional monetary policy tools. Asset purchases, including sovereigns, to the tune of €60B per month will begin in March, and will run until end-September 2016, but Mr. Draghi noted that purchases could continue if the ECB is not satisfied with the trajectory of inflation.
ECB growth bears looking for the Fed to move in order to take the sting out of the euro's recent strength were disappointed last week. The FOMC refrained from a hike, referring to the risk that slowing growth in China and emerging markets could "restrain economic activity" and put "downward pressure on inflation in the near term." In doing so, the Fed had an eye on the same global risks as the ECB, highlighting increased fears of deflation risks in China, despite a rosier domestic outlook.
Yesterday's final CPI report for April confirmed that the Eurozone is edging towards deflation.
Economic data are telling a story of a strengthening recovery, but downbeat investor sentiment points to a more difficult environment. The headline ZEW expectations index fell to a ten-month low of 12.1 in September, from 25.0 in August. This takes sentiment back to levels not seen before QE was announced, highlighting the increasing worry that deflation risks and low growth in China will derail the recovery. We don't agree, but we can't be sure the ECB thinks the same, and risks of additional stimulus this year have increased.
France just about avoided slipping into deflation in December, with the CPI rising 0.1% year-over-year, down from 0.3% in November. The 4.4% drop in the energy component should have pushed inflation below zero, but a seasonal increase in tourism services was enough to offset the drag from oil prices.
Advance data suggest German inflation pressures eased towards the end of last year. Inflation fell to 0.3% year-over-year in December from 0.4% in November, likely due to a fall in food inflation--mean reversion in fruit and vegetables inflation--and a sharp fall in the annual price increase of clothing and shoes. State data indicate that deflation in household utilities persisted, but that inflation of fuel and transportation is slowly recovering. Assuming a stable oil price in coming months, base effects should push up energy price inflation in the first quarter, though it should then fall again slightly in the second quarter. Overall, though, we expect energy price inflation gradually to stabilise and recover this year.
Investors are increasingly anxious that an intentional sharp devaluation of the renminbi, aiming to combat China's slowdown, might lead to prolonged deflation in the West, particularly in an economy as open as the U.K.
Ignore the Chinese deflation panic......The cyclical recovery is on track, and inflation is rising
Worries over China and deflation linger...and will likely push the ECB to extend QE this month
Disappointing inflation data remain a critical dark spot in the context of otherwise solid evidence of a firming cyclical recovery. Advance data indicate that inflation was unchanged at a mere 0.2% year-over-year in December, with falling food inflation and a dip in services inflation offsetting easing deflation in energy prices. Headline inflation likely will be volatile in coming months. Base effects will push up the year-over-year rate in energy price inflation further in Q1, but we are wary that continued declines in food inflation could offset this effect.
Yesterday's EZ CPI report points to a dovish backdrop for next week's ECB meeting. Advance data show that inflation was unchanged at 0.2% year-overyear in August, lower than the consensus, 0.3%. The headline was held back by a dip in the core rate to 0.8%, from 0.9% in July; this offset a lower deflationary drag from energy prices.
German inflation pressures are rising. Yesterday's final September CPI report showed that inflation rose to 0.7% year-over-year, from 0.4% in August, chiefly as a result of continued easing of deflation in energy prices.
German inflation pressures were unchanged last month. The CPI index rose 0.8% year-over-year, matching the increase in October, and in line with the consensus and initial estimate. Energy deflation intensified marginally, as a result of lower prices for household utilities.
The final June inflation report from Germany yesterday confirmed that pressures are rising. Inflation rose to 0.3% year-over-year in June, up from 0.1% in May, mainly due to higher energy prices. Household energy prices--utilities--fell 4.9% year-over-year, up from a 5.7% decline in May, while deflation in petrol prices eased to -9.4%, up from -12.1% in May.
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.
Yesterday's final CPI report in Germany confirmed the initial estimate that inflation was unchanged at 0.4% year-over-year in August. Deflation in energy prices eased further, but the headline was pegged back by a small fall in the core rate to 1.2% year-over- year, from 1.3% in July.
Mr. Draghi's speech yesterday in Portugal, at the ECB forum on Central Banking, pushed the euro and EZ government bond yields higher. The markets' hawkish interpretation was linked to the president's comment that "The threat of deflation is gone and reflationary forces are at play."
Chinese banks send a message: no rate corridor cut, no LPR reduction, PPI deflation in Korea in Q2 seems inevitable
Japan's trade balance should recover as domestic weakness sets in; Japan's manufacturing PMI undermines H2 recovery hopes; Japan's services PMI paints a damning picture of Q2; Korea's export recovery from the April low will be more gradual than the descent; A lot more downside left for PPI deflation in Korea before Q3 trough
The BoJ keeps it promises vague. Japan's April is turning out quite nicely. PPI inflation in Korea slipped in May, and is heading for deflation in Q3.
Japan's CPI inflation has troughed; Japan's budget forecasts for next year are on the rosy side; China's LPR stability reflects precarious banking sector; Korea should make a complete exit from PPI deflation this month
CPI deflation in Japan is looming, due to the collapse in global oil prices. January will be as good as it gets for Japan's all-industry activity index
Japan will be in deflation in a few months. Stimulus fails to buoy Japan's construction sector. China's smaller TMLF injection means the facility has been superseded, while interbank rates already are low.
Energy prices in Tokyo generally lag... deflation probably took hold nationwide this month
In one line: Still depressed by deflation in energy prices; the core looks robust.
In one line: Deflation in manufactured goods is still a big drag.
In one line: The EZ will soon be in deflation, temporarily.
In one line: French consumers roared back mid-way through Q2; deflation ahead for the CPI?
Last week's QE announcement has made Eurozone inflation prints less important for investors, but the market will still be watching for signs of a turning point in benchmark bond yields. The data are unlikely to challenge bond holders in the short run, however, as the Eurozone probably slipped deeper into deflation in January.
China's firms aren't passing on tax hikes after all. China takes full advantage of previous oil price declines. Japan's core machine orders better than expected, but that won't help Q2. Japan is heading for a spell of sustained PPI deflation in H2. Better May jobs report will help to keep any BoK rate cuts at bay.
In one line: Hit from oil has just started; deflation is imminent.
In one line: Japan will be in deflation in a few months
In one line: PPI back in deflation until the fall
In one line: The RMB's run is slowing the exit from deflation.
In one line: Deflation is just around the corner
Japan's exit from PPI deflation will soon hit speed bumps
In one line: Deflation in Japan is looming, due to the collapse in oil prices
Japan's machinery orders are set to stay weak. Japan's PPI deflation likely just troughed.
China's PPI back in deflation until fall. China's February CPI inflation was a battle between food and services. M2 growth in Japan was due a further uptick, given the perkier trends at the margin. Favourable base effects flattered Japanese machine tool orders in February.
The Tankan points to a q/q contraction for capex in Q3, but GDP growth overall will stay strong. Japan's unemployment steady, but details bode ill for Q4. September's full-month data dispel some export worries in Korea; expect a Q3 lift from net trade. Korea's PMI pours cold water on the spectacular jobs report for August. September is as bad as it gets for Korean CPI deflation.
Sharper energy and education deflation offset a jump in food prices in Tokyo. Lockdowns in Europe and the U.S. knock out Korean exports in April.
Claus Vistesen comments on Eurozone deflation
Two fiscal deadlines are on the near-horizon.
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