U.K. Inflation Jumps Anew

May 17, 2011

The dollar recovered 1.2% overnight against the yen and 0.3% against the Swissy but is down by  0.3% against the pound and euro, 0.2% versus the Canadian dollar, and 0.1% relative to the Australian and New Zealand dollars.  The yuan is unchanged.

Stocks were steadier than they’ve been recently, climbing 0.7% in Australia, 0.5% in China, 0.4% in New Zealand and 0.1% in Japan but easing 0.3% in Hong Kong and Taiwan and 0.1% in South Korea.  Several Asian markets were closed for Vesak Day to celebrate the birth, death and enlightenment of Buddha.  The Paris Cac and British Ftse are so far unchanged in European trading, but the German Dax has lost 0.9%.

The yields on ten-year British gilts, Japanese JGBs and German bunds have risen by three, two and one basis points.  Spain and Greece managed to sell short-term bills without much difficulty and at slightly lower average interest rates than in their prior auctions.

Oil and gold prices are 0.3% stronger at $97.68 per barrel and $1495.40 per troy ounce.

Driven mostly by higher prices for air transportation, alcohol, tobacco and gas, Britain’s consumer price index spike 1.0% upward in April, lifting the 12-month rate of increase to a new high for the move of 4.5% from 4.0% in March, 4.4% in March and 4.4% in February.  Core CPI inflation also jumped by a half percentage point, reaching 3.7%.  These accelerations were much larger than anticipated this month, but Bank of England officials have warned that inflation could reach 5% later this year.  RPI and RPIX inflation of 5.2% and 5.3% more or less met expectations in April.

The U.K. indices of leading and coincident economic indicators respectively rose by 0.4% and 0.1% in March.  The Department of Communities and Local Government reported its monthly house price measure.  Such was 0.9% higher than a year earlier in March, up from a 0.5% gain in the year to February.

The ZEW Institute of Germany released its latest monthly measures of investor sentiment toward Germany and the euro area.  On the former, the expectations index slid to 3.1 in May from 7.6 in April, 14.1 in March and 15.7 in February, but current conditions continued to improve, climbing to 91.5 from 87.1 in April, 85.4 in March, 85.2 in February and 82.8 in January.  Germany is running so well now, that it’s inevitable that expectations would point to some slowdown in intensity.  The Euroland expectations index fell to 13.6 from 19.7 in April and 31.0 in February, while current conditions in the common currency area rose to 13.6 from 5.6 the month before.

EU finance ministers met for a second day in Brussels.  This was the meeting that IMF Executive Director Strauss-Kahn was trying to go when arrested Sunday at JFK airport.  The leaders, minus the IMF chief, endorsed Portugal’s EUR 78 billion aid package, failed to rule out a reprofiling of Greek debt, but linked any additional enlargement of support for Greece to more austerity by that government.

The Reserve Bank of Australia released minutes from the May 3rd interest rate policy meeting that left the Official Cash Rate at 4.75%.  If economic trends evolve as monetary officials expect, higher rates are likely to be required.  For now, Aussie dollar strength is one factor containing inflation, but core CPI is seen hovering around the 3% target ceiling later this year and in 2012.  Weak growth last quarter caused by the floods will be transitory.  GDP growth is projected above 4% by 4Q11 and at 3.75% at 4Q12.

South African CPI inflation edged up only one tenth percentage point last month to 4.2%.  Analysts were looking for a reading close to 4.5%.  This news may further delay monetary tightening. 

On-year growth in Japanese machine tool orders was confirmed at the preliminary estimate of 32.3% in April, down from 73.9% previously.

New car registrations in Europe were 4.1% lower than a year earlier in April after dropping by 5.0% in March. 

Regional elections in Italy reflected eroded support for scandal-tainted Prime Minister Berlusconi and his center-right coalition.

Finnish producer price inflation fell to 7.3% in April from 7.8% in May.  Icelandic consumer price inflation accelerated to 3.1% last month from 2.3% in March.  Swedish house prices slid 1.1% in April, and employment was 2.8% greater than a year earlier in the first quarter. 

Scheduled U.S. data releases today feature industrial production, housing starts, building permits and weekly chain store sales.  Canada reports on net security transactions.  Bank of England and Federal Reserve minutes will be released tomorrow.

Copyright Larry Greenberg 2011.  All rights reserved. No secondary distribution without express permission.

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