Many Investors Revising Expected Fed Tightening Upward as Inflationary Pressure Spreads and Other Central Banks Move Aggressively
February 11, 2022
There were further repercussions today in the aftermath of Thursday’s U.S. January CPI release.
- Some analysts now think that the federal funds rate could be hiked at every remaining FOMC meeting this year, and there’s been more speculation over the possibility of larger incremental moves than the standard of 25 basis points.
- The ten-year U.S. Treasury yield touched 2.03% overnight and is currently at 2.00%. Comparable British and German sovereign debt yields are 55 and 44 basis points above their end-2021 levels.
- Elevated price data reported in other countries today have fanned inflationary fears further.
- The Central Bank of Russia’s monetary policy rate was raised by another full percentage point to a five-year high of 9.5%. This was the eighth increase from a base of 4.25% that prevailed from July 2020 to March 2021 and the second 100-basis point move in a row.
- High energy prices rose further today. WTI oil increased 1.5% and is above $91.0 per barrel.
In other market action today, the dollar has so far risen 0.2% on a weighted basis, mainly because of a 0.4% advance versus the euro. There have be 0.1% dips against the yen, loonie, and sterling. The price of gold has dipped 0.2%, and equity markets are lower in most countries, closing down 1.9% in New Zealand, 1.0% in Australia, 0.9% in South Korea, and 0.7% in China. Japan’s market was shut due to the National Foundation Day, but losses so far in selected European centers range from 0.3% in Germany to 1.1% in both Italy and France.
A 2.3% monthly leap in German wholesale prices last month was the largest increase since April 1974. Wholesale price inflation, which had been zero percent in January 2021, was at 16.2% in today’s report, just 0.4 percentage points south of November’s all time high.
German consumer price inflation of 4.9% in January was confirmed as unchanged from its preliminary estimate and embodied a higher 20.3% on-year jump in the energy component. Excluding energy and unprocessed food, consumer prices were 2.9% above a year earlier.
CPI inflation in Hungary leaped 1.4% on month in January (most since January 2012) and 7.9% on year, the most in 173 months.
Swiss CPI inflation swung from -0.5% in January to a 159-month high of 1.6% one year later.
Taiwanese CPI inflation had fallen 0.2 percentage points in December but rebounded last month to draw virtually even with November’s 110-month high. Wholesale price inflation in Taiwan slipped back for a third straight time to a 10-month low but remained in double digits at 10.8%.
British GDP, industrial production, construction output, and trade data were released today.
- Monthly GDP dipped 0.2% between November and December. In further evidence that the Omicron variant isn’t depressing growth as much as earlier waves of the pandemic, quarterly GDP in the U.K. climbed 1.0% in 4Q 2021 and posted a 6.5% rise compared to a year earlier — still not quite enough to pull even with the economy’s pre-pandemic level. After slumping a record 9.4% in 2020, calendar year average GDP recovered 7.5% in 2021, most in 80 years.
- Industrial production grew 0.3% in December, a touch more than forecast and the second straight increase after declines in both September and October. Industrial production was only 0.4% above a year earlier.
- Construction output has been very robust, gaining 2.0% in December on top of 1.9% in November to double the year-on-year increase to 7.4%.
- Foreign trade continues to be a GDP depressant in the U.K.. The quarterly GDP release revealed diverse changes of -0.6% in exports but +5.3% in imports. The nominal goods trade deficit printed at GBP 11.7 billion in October, GBP 12.7 billion in November and GBP 12.3 billion in December, while the goods and services trade balance swung from a surplus of GBP 2.859 billion in 2020 to a deficit of GBP 28.761 billion last year.
Malaysian GDP returned to positive territory last quarter after back-to-back contractions in the two middle quarters of 2021. For the year as a whole, GDP expanded 3.1% after plunging 5.6% in 2020.
Reflecting Covid, China’s current account surplus imploded 84% to a 7-quarter low of $119.4 billion in 4Q 2021.
Indian industrial production was only 0.4% greater than a year earlier in December, its weakest 12-month rate of increase in ten months.
Indonesian consumer confidence improved to a two-year high in January and was greatly better at 119.6 than 77.3 back in August.
Turkish industrial production and retail sales were 14.4% and 15.5% greater in December than a year earlier, but that month’s current account deficit of $3.841 billion was the largest shortfall in 16 months.
The Peruvian central bank monetary policy rate was raised to 3.5% from 3.0%, marking the fourth straight monthly rise of a half percentage point.
As noted above, the Central Bank of Russia took even more aggressive monetary policy action, lifting its policy rate to 9.5% following increases of 100 basis points also in December and 75 bps in October. Over the past 11 months, the rate has risen 525 basis points, and a released statement “holds open the prospect of further key rate increase at its upcoming meetings. Key rate decisions will be made taking into account actual and expected inflation movements relative to the target, economic developments over the forecast horizon as well as risks posed by domestic and external conditions and the reaction of financial markets.” Russian CPI inflation is currently at 8.7% and still cresting. Unemployment is at an all time low, with acute labor shortages. Military operations in Ukraine, which Russia appears imminently prepared to initiate, are likely to subject the economy to further inflationary stress and may put downward strain on Russian growth, which the statement is projecting likely to expanded 2-3% this year but somewhat weaker in 2023. The statement doesn’t mention Ukraine, Eastern Europe, or Nato.
Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: British GDP, Central Bank of Russia, Central Reserve Bank of Peru, China current account, German CPI
ShareThis
