More Signs of Intensifying Inflation and Another Central Bank Rate Hike

November 10, 2021

The dollar didn’t move much right after U.S. CPI data were released but had already advanced by 0.0.4% overnight on a weighted basis before then to within 0.2% of its 52-week high. Dollar gains amounted to 0.5% against the kiwi and sterling, 0.4% relative to the euro and yen, and 0.3% vis-a-vis the Swiss franc and Australian dollar. The beleaguered Turkish lira was 1.0% lower and caught in a toxic mix of accelerating domestic inflation, currency depreciation, and out-of-step political rhetoric.

Amid rising global inflation and speculation that central bank interest rates will be rising sooner and farther than monetary officials suggest, ten-year sovereign debt yields overnight by 3 basis points in the U.K., a basis point in Germany, and by 4 basis points in the U.S. where a multi-week low just beneath 1.42% had been touched yesterday on an intra-day basis.

West Texas Intermediate crude oil settled back 0.8%, but energy price pressures featured prominently in price data released this Wednesday. The price of gold was trading 0.2% lower just before the release of U.S. data.

U.S. stock futures are down around 0.4%. Japan’s Nikkei lost 0.6% today. Share prices fell 1.1% in South Korea, 0.5% in New Zealand, and 0.4% in Germany. Modest losses so far in Germany and France are balanced by a 0.5% rise in the British Ftse.

The U.S. labor market continues to mend. New jobless insurance claims fell for a sixth consecutive week and, at 267k, were at their fewest level since the week of March 14, 2020. However, continuing claims in the latest reported week were somewhat greater than in the prior one.

The claims data were overshadowed by U.S. October consumer prices figures that in many respects exceeded analyst expectations. A 0.9% monthly CPI advance, the most since June and greater than the combined upticks in August and September, lifted the 12-month inflation rate by 0.8 percentage points to 6.2%. That level represents a 373-month high and is an acceleration of two percentage points in the past half year and over fourfold since January. Core inflation, which early this year had lagged the rise of overall consumer prices, advanced to 4.6% in October from 4.0% in September and 1.6% in April.

In China, consumer prices climbed 0.7% on month in October, most since February, and to a 13-month high in October. CPI inflation only moved above zero percent last March. Producer price inflation jumped almost three percentage points to 13.5%, a percentage point above expectations and the most since 1995.

Brazilian CPI inflation of 10.7% last month was the most in 69 months after the largest month-on-month increase since December 2020.

German CPI inflation of 4.5% in October was up from 2.3% at mid-2021 and the highest since August 1993 when that economy was still feeling the inflationary fallout of the merger of the Deutsche mark and the East German Ostmark at a noncompetitive 1:1 ratio.

Danish CPI inflation rose 0.8 percentage points to a 123-month high in October of 3.0%.

Czech CPI inflation rose to 5.8% in October from 4.9% in September, 2.8% in June and as low as 2.1% last February.

Greek CPI inflation of 3.4% in October after 2.2% in September was the most since 2011.

Norwegian consumer price inflation bucked the pattern of the above releases, settling back to a 2-month low of 3.5% in October after 4.1% in September, but producer prices shot up 6.2% last month and were 60.8% higher than in October 2020. The CPI’s 0.3% monthly dip is not going to represent a topping out moment.

The National Bank of Romania‘s November policy meeting this week resulted in a second consecutive 25-basis point policy rate hike, which at 1.75% is at its highest level since May-August 2020 but still 75 basis points below the pre-pandemic level. The NBR’s deposit rate was left unchanged at 1.0%, but the lending facility rate has been lifted 50 bps to 2.5%, creating a symmetric band around the policy rate. Inflation in Romania has accelerated from 2.9% in June to 3.6% in September and 7.0% last month. That’s well above the medium-term target corridor of 1.5-3.5% of Romania’s central bank, and many analysts were anticipating that officials would authorize a 50-basis point increase. A released statement attributes the climb of inflation to “exogenous” factors that are still at play: “The updated forecast shows a significant additional worsening of the inflation outlook almost throughout the projection horizon, under the strong impact of supply-side shocks, as the forecasted path of the annual inflation dynamics has been again revised considerably upwards, especially over the short term.” Short-term inflation expectations have moved higher. The hope to normalize monetary policy may need to be stepped up in coming months.

The Central Bank of Thailand also reviewed policy today and, as expected and by unanimous consent, agreed to leave its policy interest rate unchanged at 0.5% where such has been since a trio of 25-basis point cuts in February, March and May of 2020. CPI inflation in Thailand was at a 5-month high of 2.4% last month but still below this year’s high point of 3.4% last April. Officials are trying to balance many objectives including supporting the economic recovery. That priority may have to be subordinated later this year if the wave of global inflation hits Thailand more squarely.

Some of today’s other data highlights include

  • Italian industrial production, which rose 4.4% on year in September compared to double-digit advance as recently as May and June.
  • A large 81.5% on-year jump in Japanese machine tool orders in November from a year earlier.
  • Substantially lower new Chinese loans (826 billion yuan versus CNY 1.66 trillion in October). The smaller figure was anticipated and accompanied by a 7-month high in on-year growth of the broad M2 money aggregate.
  • September on-year increases of industrial production amounting to 9.7% in Greece, 6.6% in Finland and 3.3% in Austria.
  • A five-quarter low in Portugal’s unemployment rate of 6.1% in 3Q 2021, down from 8.0% a year earlier.
  • South Korean unemployment, in contrast, rose to 3.2% in October from 2.8% in August.
  • A 4.3% monthly drop in Australian building permits and a 0.6% rise of consumer confidence in that economy during November.

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

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