The Fact of Inflation Persistence is More Certain than Russia’s Claim to Be Partially Pulling Troops Back from the Russian Border

February 15, 2022

Stock markets rebounded Tuesday on reports out of Russia that some military forces at the border with Ukraine will be pulled back. President Putin’s real intentions remain to be seen. Nonetheless, Putin wasn’t expected to flinch, so the unexpected nature of his action triggered an initial sigh of relief from investors.

  • Prices of WTI oil and gold fell back 2.3% and 1.0% overnight.
  • In European equity trading, markets are currently show gains of 1.7% in Italy and Germany, 1.3% in France and Spain, 1.0% in Switzerland and 0.9% in Great Britain. U.S. stock futures are also up at least 1.0%.
  • In the Pacific Rim, share prices closed down 0.8% in Hong Kong and Japan, off 1.0% in South Korea, and down 0.5% in Australia, but the Chinese, Indian, and Indonesia markets are higher.
  • The move back into riskier assets was associated with rises so far today of 5 basis points in U.S. and Canadian 10-year sovereign debt yields, 4 basis points in the 10-year German bund yield and 3 bps in its French counterpart.
  • The dollar, which benefits from geopolitical tension, fell 0.4% on a weighted basis including 0.6% against the euro, 0.3% versus the Swiss franc, and 0.2% vis-a-vis sterling. Dollar/yen is steady, however.

Both Japan and Euroland reported fourth-quarter GDP figures, but today’s more meaningful data news in the current context of elevated inflation came from the U.S. PPI report and other price and wage data. Higher-than-expected inflation during 2021 had been the profoundest data surprise in many years, and it’s clear that this development is not proving to be a transitory phenomenon. While December has provided some hints to price stabilization, January data are indicating a fresh resurgence in inflationary pressure.

The monthly rise of U.S. producer prices in December was in fact revised upwards to 0.4% from 0.2%, and the PPI index then leaped 1.0% last month. This resulted in a 9.7% on-year advance, not the 9.1% consensus of analysts and down from 9.8% back-to-back increases in November and December. In January 2021, PPI inflation had been at 1.7%, by comparison. Energy and food producer prices each posted big monthly advances last month.

Greek CPI inflation, which had been -1.6% in March 2021, jumped 1.1 percentage points in January 2022 to a 299-month high of 6.2%.

Polish consumer prices rose 1.9% in January, lifting their 12-month rate of increase from 8.6% to 9.2%, the most in 253 months.

Spanish CPI inflation retreated 0.4 percentage points in January but, at 6.1%, was above 5.5% in November, 2.7% at mid-2021, and just 0.5% in January 2021.

South Korean import price inflation climbed a half percentage point to 30.1% last month.

In 4Q 2021, British average wage earnings were 4.3% above their year earlier level. Labor productivity rose 1.0% over that interval. Jobless insurance claims fell in January for a tenth straight month, but the drop was the smallest since last March. The U.K. jobless rate of 4.1% is the lowest in 18 months.

Japanese real GDP had contracted 0.7% (-2.7% annualized) last summer but then rebounded 1.3% (5.4% at an annualized rate) in the final quarter of the year. Analysts had expected a slightly sharper bounce than occurred, and GDP only posted year-on-year rises of 0.7% last quarter and 1.7% in 2021 following the 4.5% contraction in 2020. Personal consumption, up 11.2% in 4Q, accounted for the entire rise of GDP and then some. Residential construction, the change in inventories, and government expenditures exerted drags on GDP in the quarter.

A 0.3% quarterly rise and 4.6% year-on-year advance in euro area GDP in 4Q 2021 matched an earlier estimate reported on January 31st. Within the common European currency bloc, German GDP contracted 0.7% on quarter but rose 1.4% on year; French GDP expanded 0.7% on quarter and 5.4% on year; Italian GDP climbed 0.6% on quarter and 6.4% on year; Spanish GDP jumped 2.0% on quarter and 5.2% on year; and Dutch GDP advanced 0.9% on quarter and 6.0% on year. Like Germany, Austrian GDP contracted last quarter, but Portugal, Cyprus, Belgium and Finland posted quarterly GDP increases of 1.6%, 0.9%, 0.5%, and 0.6%.

In Eastern Europe, Hungarian GDP climbed 2.1% on quarter and 7.1% on year during 4Q; Polish GDP rose 1.7% on quarter and 7.7% on year; Czech GDP went up 0.9% on quarter and 3.6% on year; but Romanian GDP fell 0.5% last quarter, which cut the on-year increase to 2.7% from 7.6% in 3Q and 13.4% in the second quarter.

In Denmark, GDP grew 1.1% on quarter and 3.9% on year, while Swedish GDP advanced 1.4% on quarter and 6.1% on year.

Of the myriad countries mentioned above, only Spain and Hungary experienced faster GDP growth in the final quarter of 2021 than did the United States. In 2021 as a whole, real GDP rose 5.7% in the United States, 5.2% in Euroland, and 1.7% in Japan.

Euroland’s trade surplus fell sharply from EUR 215.8 billion in 2020 to EUR 68.9 billion in 2021. And in December, the balance of trade swung into the red with an unadjusted deficit of EUR 4.6 billion from a surplus of EUR 28.3 billion in December 2020. The seasonally adjusted deficit widened to EUR 9.7 billion in the final month of 2021 as exports dipped 0.6% on month, while imports jumped 3.1%.

Euroland employment rose 0.5% last quarter. That was the third straight quarterly increase but a slower pace than seen in either 2Q or 3Q. There were 2.1% more jobs than in 4Q 2020. but just 0.3% more than in 4Q 2019.

The German ZEW Institute released February monthly measures of investor sentiment today. A 7-month high in expectations regarding Germany’s economy prompted officials to characterize the mood as “cautiously optimistic.” The reading for Germany’s current situation, at -8.1, remained well below zero neutrality but by two index points fewer than January’s 8-month low. As for Euroland’s economy, the expectations index fell 0.8 pints to 48.6, while current conditions improved appreciably to +0.6.

The December second estimate of Japanese industrial production in December showed an unrevised drop of 1.0% compared to November and rise of 2.7% from the year earlier level. In calendar 2021, industrial production recovered 5.8% following drops of 10.4% in 2020 and 3.0% in 2019. Capacity utilization increased 3.3% last year after declining 12.8% in 2020 and 3.1% in 2019.

Chinese foreign direct investment, which in 2021 climbed 14.9%, was 11.6% higher in January than in the same month a year earlier.

Canadian housing starts unexpectedly fell 3.0% further in January after December’s 22.3% collapse and were 24% fewer than November’s high. Canadian Premier Trudeau yesterday declared a national emergency in hopes of obtaining the authority to quell the paralyzing truckers’ protest against anti-Covid public policies.

The U.S. Empire State manufacturing index at 3.1 this month after -0.7 in January failed to rebound nearly as much as analysts had been predicting. The index had printed at 31.9 in December and 43.0 last July.

Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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