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96 matches for " inflation expectations":
Don't be alarmed by the second straight jump in consumers' inflation expectations, captured by the Conference Board's May survey, reported yesterday.
Yesterday's French INSEE consumer confidence data provided a fascinating glimpse into the reality for households during these strange times. The headline index fell by "just" eight points in April, to 95 from 103 in March, comfortably beating the consensus for a crash to 80.
As we go to press, Mr. Draghi is set to give the opening remarks for the 2019 ECB central banking forum in Sintra, and later today, at 09:00 CET, the president delivers his introductory speech.
Brazil's central bank is in a very delicate situation. The economy is on the verge of another recession, but at the same time the BRL is falling, inflation expectations are rising and the inflation rate is overshooting. Fiscal policy is also tightening to restore macro stability magnifying the squeeze on growth.
Financial markets' inflation expectations have risen sharply since the spring. Our first chart shows that the two-year forward rate derived from RPI inflation swaps has picked up to 3.8%, from 3.5% at the end of April.
Households' inflation expectations have fallen again over the last few months, but we doubt they will constrain the forthcoming rebound in actual inflation. Past experience shows that inflation expectations are more of a coincident than a leading indicator of inflation. In addition, inflation is weakest right now in sectors where demand is relatively insensitive to price changes, so, when retailers' costs rise, they won't pay much heed to households' expectations.
The renewed decline in bond EZ bond yields has raised the question of whether inflation expectations will recover at all in this cycle. We think they will, and we also believe 10-year yields will rise towards 1%-to-1.2% towards the end of the year. But two factors will keep inflation expectations and yields in check in the near term.
Most LatAm currencies have been under pressure recently, with the Brazilian real and the Chilean peso breaking all-time lows versus the USD in recent weeks.
At Wednesday's BCB monetary policy meeting, led for the first time by the new president, Roberto Campos Neto, the COPOM voted unanimously to maintain the Selic rate at 6.50%, the lowest on record.
Economic activity in Chile in the first half of the year is now a write-off, due to Covid-19. The country is in a deep recession, and the impact of lockdowns on labour markets and businesses will cause long-lasting economic damage, which will hold back the recovery.
Inflation pressures in Brazil and Mexico are well under control, with the August mid-month readings falling more than expected, strengthening the case for the BCB and Banxico to cut interest rates in the near term.
The ECB conformed to expectations today, at least on a headline level.
Some normality has returned in India, more than three weeks from the end of the nationwide lockdown and the start of "Unlock 1.0" on June 1.
Japan's headline inflation will be volatile for the rest of the year, thanks to movements in the noncore elements.
Economic activity in Mexico during the past few months has been stronger than most observers expected. Growth has certainly moderated from the relatively strong pace recorded during the second half of last year, but data for January and February show that it is still quite strong.
Mexican policymakers likely will stick to the script tomorrow and vote by a majority to cut the main rate by 50bp to 5.00%, which would be its lowest level since late 2016.
Brazil's central bank looked through the recent dip in the BRL and left interest rates at 6.50% at Wednesday's Copom meeting, in line with the consensus.
Yesterday's final CPI report for April confirmed that the Eurozone is edging towards deflation.
Argentina's inflation ended 2019 badly, and it is still too early to bet on a protracted downtrend, even after the renewed economic slowdown.
Yesterday's final CPI data for May confirmed that the EZ economy is within touching distance of headline deflation.
Colombian policymakers on Friday cut the reference rate by 50bp, for a third straight month, to 2.75%.
Policymakers in Brazil and Chile took another big step this week in assuring markets that they won't hesitate to act in the fight against the virus.
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.
Economic and financial conditions continue to deteriorate sharply in LatAm.
Looking beyond the potential hit from the lockdown in North Rhine-Westphalia, German consumer sentiment is improving steadily.
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 Brazilian Central Bank's policy board-- COPOM--voted unanimously on Wednesday to cut the Selic rate by 50bp to 5.50%.
Rapidly increasing food inflation is creating all sorts of dilemmas for policymakers in Asia's giants.
We just can't get away from the deeply vexed question of wages; specifically, why the rate of growth of nominal hourly earnings has risen only to just over 2.5%, even though the historical relationship between wage gains and the tightness of the labor market points to increases of 4%-plus.
Korea's manufacturing PMI fell for a fourth straight month in April, dropping to 41.6, which is the lowest reading since January 2009.
Thursday and Friday were busy days for LatAm economy watchers. In Brazil, the data underscored our view that the economy is on the mend, but the recent upturn remains shaky, and external risks are still high.
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 Fed's 50bp rate cut last week, aiming to shield the U.S. economy against Covid-19, has opened the door for some central banks in LatAm to emulate the move.
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 Brazilian central bank cut the benchmark Selic interest rate by 25bp, to 4.25%, on Wednesday night, as expected.
Andean inflation remains under control, due to subpar growth, modest pressures on prices for nontradeables, and broadly stable currencies.
Data released on Friday showed that November inflation was in line with, or below, expectations in Brazil, Colombia and Chile.
Headline inflation in Brazil remained low in October, and even breached the lower bound of the BCB's target range.
Economic prospects in the Andes have deteriorated significantly in recent weeks, due mainly to the escalation of the trade war.
The massive hit from low oil prices, Covid-19 and President AMLO's willingness to call snap referendums on projects already under construction is putting pressure on Mexico's sovereign credit fundamentals and ratings.
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.
Data released yesterday in Brazil support our base case that the IPCA inflation rate will remain relatively stable over the coming months, hovering around 2%.
The coronavirus outbreak has pushed inflation lower in the Andean economies as the shock drives them into the deepest recession on record.
The coronavirus pandemic looks set to spread rapidly throughout LatAm.
The MPC likely will vote unanimously to keep Bank Rate at 0.75% on Thursday.
Yesterday's inflation data in the major euro area economies force us to mark down slightly our prediction for today's headline EZ number.
Data released over the last few weeks have confirmed that Colombia's economic performance in Q2 was grim, adding weight to our below-consensus GDP forecast.
Japan's Q2 Tankan survey wasn't all bad news, but the positives won't last long. The large manufacturers index dropped to 7 in Q2, after the decline to 12 in Q1.
President Trump tweeted yesterday that he wants to re-introduce tariffs on steel and aluminium imports from Brazil and Argentina, after accusing these economies of intentionally devaluing their currencies, hurting the competitiveness of U.S. farmers.
Mexican policymakers yesterday voted unanimously to cut the policy rate by 50bp to 5.00%, the lowest level since late 2016.
Data released yesterday from Brazil support our view that the economic recovery continues, but progress has been slow.
The apparent thaw in the U.S.-China trade dispute is great news for LatAm, particularly for the Andean economies, which are highly dependent on commodity prices and the health of the world's two largest economies
Brazilian political risk remains high, due mainly to President Bolsonaro's gross mismanagement of the Covid-19 crisis, but, as we have argued in previous Monitors, it is unlikely to deter policymakers from further near-term monetary easing.
The U.S. Federal Reserve didn't quite deliver the shock-and-awe yield curve control this week which some observers had been expecting, but the message was clear enough.
The Andean countries were quick to implement significant measures in response to the initial stage of the pandemic, adopting a broad range of economic and social policies to ease the effects.
Economic conditions in Brazil are deteriorating rapidly.
Banxico's monetary policy meeting on Thursday was the first to be attended by the two new deputy governors, Jonathan Heath and Gerardo Esquivel, economists appointed by AMLO.
The coronavirus outbreak and its associated movements in asset prices have radically changed the outlook for CPI inflation, which ultimately the MPC is tasked with targeting.
The pound can't get a break. Sterling fell to just $1.24 yesterday, its lowest level against the dollar since March 2017, bar the momentary "flash crash" in January.
Data released in recent days have supported our base case for further interest rate cuts in Mexico over the coming meetings.
The ECB made no changes to its policy stance yesterday.
Mexican industrial activity started the fourth quarter badly. Industrial production fell 0.1% month- to-month in October, pushing the year-over-year rate slightly up to -1.1% from -1.2% in September and -0.7% in Q3.
The Office for Budget Responsibility has decided to press ahead with the publication of new fiscal forecasts on November 7, despite the government's decision to postpone the Budget until after the next election.
Inflation in the Andean economies ended 2019 well within central banks' objectives, despite many domestic and external challenges.
Mexican policymakers stuck to the script yesterday and voted unanimously to cut the main rate by 50bp to 5.50%, its lowest level in more than three years.
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%.
Friday's June inflation data in Brazil confirmed that the ripples from the worst of the Covid shock were still being felt at the end of the quarter.
The consumer in Brazil was off to a strong start to the first quarter, and we expect household spending will continue to boost GDP growth in the near term.
Last week, the Bank of Mexico unanimously voted to leave the main rate on hold, at 7.50%, its highest level since early 2009.
External and domestic shocks in Mexico over the last two years, including the "gasolinazo", NAFTA renegotiation and the presidential election, have put the country's financial metrics under severe stress and pushed inflation to cyclical highs.
Industrial production in India turned around sharply in November, rising by 1.8% year-over-year, following October's 4.0% plunge and beating the consensus forecast for a trivial 0.3% uptick.
More depressing economic numbers in LatAm have been released in recent days, and high frequency data continue to show a near-term bleak outlook.
The BoE announced on Thursday that it had agreed the Treasury could increase its usage of its Ways and Means facility--effectively the government's overdraft at the central bank--without limit.
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.
Even though Greece managed to avert default yesterday by paying €200M in interest to the IMF, our assumption is that the country remains on the brink of running out of money. Our view is supported by the government's decision to expropriate local authority funds, and reports that the government's domestic liabilities, excluding wages and pensions, are not being met.
Peru's central bank left its policy interest rate unchanged at 3.75% last week, but signalled that further easing is on the way. According to the press release accompanying the decision, policymakers noted that inflation expectations are within their target range and still falling.
Recent bond market volatility has left a significant mark on Eurozone credit markets. The recent slide in the Bloomberg composite index for Eurozone corporate bonds is the biggest since the U.S. taper tantrum in 2013. The prospect of a Fed hike later this year and rising inflation expectations in the Eurozone have changed the balance of risk for fixed income markets.
Brazil's decision to keep interest rates at 14.25% on Wednesday was a surprise. The consensus forecast immediately before the meeting was for a 25bp increase. As recently as Tuesday, though, most forecasters expected a 50bp increase, following hawkish comments from Board members since the last meeting in November, and rising inflation expectations. But the day before the meeting, the IMF revised its forecast for 2016 GDP to -3.5%, much worse than the 1% drop it predicted in October.
This week's November mid-month inflation reports in Brazil and Mexico underscored their divergent trends. Inflation pressures are steadily falling in Brazil, but in Mexico, the pass-through from the MXN's sell- off is driving up inflation and inflation expectations.
Markets' inflation expectations have fallen in recent weeks, maintaining the trend seen over the previous 18 months. The fall in expectations for the next year or so is justified by the sharp fall in oil prices. But expectations for inflation further ahead have drifted down too, even though lower oil prices will have no effect on the annual comparison of prices beyond a year or so from now.
The Central Bank of Argentina surprised markets on Tuesday, raising its main interest rate by 100bp to 28.75% to cap inflation expectations and push core inflation down at a faster pace.
Banxico raised its benchmark interest rate by another 25bp to 7.0% at last Thursday's policy meeting. This hike follows nine previous increases, totalling 375bp since December 2015, in order to put a lid on inflation expectations and actual inflation. Both have been lifted this year by the lagged effect of the MXN's weakness last year, the "gasolinazo", and the minimum wage increase in January.
In yesterday's report we discussed the recent performance of current inflation and inflation expectations in the biggest economies in LatAm, highlighting that risks are tilted to the upside, given the recent FX sell-off and rising political and external risks.
Brazil's central bank started the year firing on all cylinders. The Copom surprised markets on Wednesday by delivering a bold 75bp rate cut, bringing the Selic rate down to 13.0%. In October and November, the Copom eased by only 25bp, but inflation is now falling rapidly and consistently. The central bank said in its post-meeting communiqué that conditions have helped establish a "new rhythm of easing", assuming inflation expectations hold steady.
In one line: Held up by soaring inflation expectations.
ECB board member Peter Praet fired the first shot across the markets' bow yesterday following this week's turmoil. Speaking to journalists in Germany, Mr. Praet noted "increased downside risk of achieving a sustainable inflation path towards 2%," and assured investors the current QE program is fully flexible, and can be readily adjusted in response to an adverse development in inflation expectations. We don't think, though, this is a pre -cursor for additional easing at next week's ECB meeting.
In one line: Sentiment still very elevated; inflation expectations dip.
We're expecting the FOMC to vote unanimously not raise rates today, but we do expect a modestly hawkish tilt in the statement. Specifically, we're expecting an acknowledgment of the upturn in business investment reported in the Q4 GDP data, and of the increase in market-based measures of inflation expectations, given that 10-year TIPS breakevens are now above 2% for the first time since September 2014.
In one line: Mexico tariff fears hit sentiment and raised inflation expectations; expect a reversal.
In one line: Confidence high and stable; inflation expectations steady.
The violence of recent bond market weakness likely has been driven mainly by reduced liquidity, and a squeeze in crowded positions. But we also think that it can be partly explained by an adjustment to higher inflation expectations. The latest ECB staff projections assume the average HICP inflation will be 0.3% this year, up from the zero predicted in March. Allowing for a smooth increase over the remainder of the year, this implies a year-end inflation rate of 0.8%.
Mexico's policymakers are battling two opposing forces. First, inflation pressures are rising, on the back of the one-time increase in petrol prices and the lagged effect of the MXN's sell-off in Q4. These factors are pushing short-term inflation expectations higher, even though the MXN has remained relatively stable since President Trump took office and has risen by about 6% against the USD year-to-date.
In yesterday's Monitor, we laid out the macroeconomic case for moderately higher inflation in the second half of the year. But subdued market based inflation expectations indicate that the ECB will retain its dovish bias for now. The central bank's preferred measure, 5-year/5-year forward inflation expectations, have only increased modestly in response to QE, and have even declined recently on the back of higher market volatility.
Ian Shepherdson, founder at Pantheon Economics, discusses rising U.S. inflation expectations and his outlook for the Federal Reserve in response to President-Elect Donald Trump's economic plan. He speaks on "Bloomberg Surveillance."
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