CPI Inflation Rose in April to 24-, 14- and 151-Month Highs Germany, France and the United States

May 12, 2021

Equity markets remain vulnerable to fears that higher inflation will compel central banks to raise interest rates sooner than forward guidance has been suggesting. Markets closed down today by 4.1% in Taiwan, 1.6% in Japan, 1.5% in South Korea, and 0.7% in Singapore and Australia. U.S. stock futures are somewhat lower, too. Share prices recovered 0.8% in Hong Kong and 0.6% in China, but India’s exchange is off 1.0%, and European markets are narrowly mixed.

The dollar and 10-year sovereign debt yields have also been mixed overnight, gaining 0.7% against the Turkish lira, 0.5% relative to the kiwi, 0.4% vis-a-vis the Australian dollar, 0.2% versus the yuan, and 0.1% against sterling, but sliding 0.3% against the loonie, 0.2% versus the euro and 0.1% against the peso. The 10-year Treasury yield is flat. Ten-year British gilt and German bund yields are down 2 and 1 basis points, while their Japanese counterpart has edged up a basis point, with the yen holding steady.

Evidence looks strong that Russian hackers were responsible for the ransomware strike against the U.S. oil pipeline. A second source of tension in the oil market has been escalating military violence between Israel and Gaza Strip Palestinians. West Texas Intermediate crude oil rose 1.4% overnight, but gold edged 0.2% lower.

U.S. CPI inflation heated up in April by far more than had been expected. The 12-month rate of increase accelerated from 1.7% in February and 2.6% in March to 4.2% last month, most since September 2008. But the real shocker involved core inflation (ex food and energy), which jumped 0.9% on month, which constitutes a 39-year high, and 3.0% on year, most since the start of 1996. Prices for used cars and trucks leaped 10% on month.

German CPI inflation increased 0.7% on month in April, the fifth straight rise of at least a half percent, and accelerated to an on-year pace of 2.0%, most in two years. Excluding food and energy, consumer prices rose 0.7% on month and 1.3% on year.

French CPI only rose 0.1% on month, but the year-on-year comparison advanced to a 14-month high of 1.2% from 1.1% in March and 0.0% at the end of 2020.

Swedish CPI inflation rose to a 23-month high of 2.2% last month.

Greek consumer prices recorded their smallest on-year decline (-0.3%) in April in 13 months. Portuguese CPI inflation, which ended 2020 at negative 0.2%, increased 0.1 percentage point in April to 0.6%.

Irish house price inflation accelerated 0.7 percentage points to a 2-year high of 3.7% in March.

In other data news, industrial production in Euroland only rose 0.1% in March, which was well short of analyst expectations. Compared to a pandemic-depressed level in March 2020, the on-year advance of 10.9% was still a record high.

Several British economic indicators were reported today. Real GDP sank 1.5% last quarter, interrupting back-to-back increases in the second half of 2020 and resulting in the fifth consecutive year-on-year decline, this time of 6.1%. Business investment remained especially depressed, dropping 11.9% on quarter and 18.1% from the first quarter of 2020. With Covid restrictions starting to get lifted at the end of last quarter, monthly GDP rose 2.1% in March and 1.4% from a year earlier. Industrial production grew 1.8% in March but was 1.8% below the pre-pandemic level of February 2020. Factory output recorded its first 12-month increase in two years. Construction output in March was 6.0% greater than a year earlier. Construction orders leaped 12.2% last quarter but were 13.3% fewer than their year-earlier total. Turning to trade, the goods and services deficit printed at GBP 1.966 billion in March, its largest deficit of the quarter and the seventh red-ink result in the past eight reported months. In goods trade only, the deficit increased to GBP 11.71 billion in March.

Japan’s index of coincident economic indicators improved to a 13-month high in March and compelled officials to upgrade the trend assessment to “improving,” the first such designation since August 2018. The index of leading economic indicators rose to a 7-year high.

Australian building permits jumped 20.1% in February and a further 17.4% in March. Central bank officials there have expressed some concern about the hot housing market but have not tapered their extensive monetary policy stimulus.

Real GDP in Norway contracted 0.6% on quarter and 1.4% on year in 1Q 2021. Excluding North Sea oil, GDP was 1.0% lower than a year earlier.

South Korea’s jobless rate fell 0.2 percentage points to an 8-month low of 3.7% last month.

In central banking news, the 2.0% Filipino overnight repo rate was kept unchanged after the latest policy review. In 2020, the rate was cut in February, March, April, June and November by a total of 200 basis points from 4.0% at the start of the year. “The BSP affirms that maintaining an accommodative stance should quicken the economy‚Äôs transition toward a sustainable recovery.”

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

 

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