More Bad Inflation News and a Diversity of Central Bank Decisions

April 8, 2022

The dollar continued to trade at historically firm levels overnight. The weighted DXY dollar index is up 0.1% and touched another multiyear high of 99.99. Gains of 0.5%, 0.3% and 0.2% were made against the New Zealand, Australian and British currencies, but the greenback dipped 0.2% versus the Russian ruble.

Asian stock markets made modest gains, and U.S. equity futures are similarly marginally higher. Bigger equity markets advances have occurred in Europe including gains of more than 1.0% so far in Germany, France, Italy and Spain. The Russian MOEX bucked that trend with a 1.0% decline.

With economic sanctions set to tighten further against Russia, the price of West Texas Intermediate crude oil strengthened 1.5%. Gold slid 0.2%. The ten-year U.S. Treasury yield rose two basis points overnight.

Hungarian consumer price inflation of 8.5% in Hungary last month represented a 178-month high. A full percentage point jump in core CPI to 9.1% revealed price pressures spreading out from those items initially affected by global supply chain delays.

Greek consumer prices leaped 2.7% on month in March, lifting the 12-month rate of increase by 1.7 percentage points to a 321-month high of 8.9%. Lithuanian consumer prices likewise advanced 2.4% on month and 15.7% compared to March 2021, which was the biggest on-year inflation in 305 months.

In Taiwan, CPI inflation of 3.27% last month was up from 1.26% a year earlier and the most since May 2012. Wholesale price inflation in Taiwan accelerated 2.4 percentage points to 13.9%.

The latest batch of central bank interest rate decisions includes a 250 basis point hike in the State Bank of Pakistan’s policy rate to 12.25%. The decision was made at an emergency unscheduled meeting, accompanied by an upwardly revised 11% projected rate of inflation this year, and explicitly intended to restore a premium between the policy rate and forward-looking inflation. Officials also hope to stop the rupee from depreciating.

At a different unscheduled monetary policy meeting, the Central Bank of Russia’s Board of Directors cut that bank’s policy rate by 300 basis points to 17% from 20%. A statement explains that “today’s decision reflects a change in the balance of risks of accelerated consumer price growth, decline in economic activity and financial stability risks.” Russian growth prospects have been dealt an additional blow by newly announced western sanctions, while the ruble’s 80% rebound from a low of 143.2 per dollar to its pre-invasion level and the avoidance of a debt default create some room to relax the monetary brakes. In February the policy rate was raised by a percentage point on the 11th and then another 10.5 percentage points on the 28th, and those moves followed seven increases in 2021 totaling 425 basis points from a record low of 4.25%.

At this month’s scheduled monetary review, the Central Reserve Bank of Peru lifted its policy interest rate by 50 basis points to 4.5%, its highest level since 2009. While the Fed only within the past month entertained the thought of raising interest rates by increments greater than 25 basis point (something not done in decades), officials at the BCRP have been methodically ramping the rate up by 50 basis points a shot since last September. They have now done eight such moves, and that string was preceded by an initial doubling of the rate to 0.50% last August. Peruvian CPI inflation more than doubled from  and in-target 2.6% in March 2021 to a 283-month high of 6.82% in March 2022. The target range of 1-3% isn’t expected to be restored until “between the second and the third quarter of next year,” according to today’s released statement.

Officials at the Reserve Bank of India also announced the decision of their latest policy review today, which resulted in no change being made to the record low repo rate of 4.0%. Such has been at that level since cuts of 75 basis points in March 2020 and 40 bps two months later.

The Monetary Policy Committee  is of the view that since the February meeting, the ratcheting up of geopolitical tensions, generalized hardening of global commodity prices, the likelihood of prolonged supply chain disruptions, dislocations in trade and capital flows, divergent monetary policy responses and volatility in global financial markets are imparting sizable upside risks to the inflation trajectory and downside risks to domestic growth. Given the evolving risks and uncertainties, the MPC has decided to keep the policy repo rate unchanged at 4 per cent. The MPC also decided to remain accommodative while focusing on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.

It’s not surprising that the highest inflation in decades, an uncertain war in Ukraine, and continuing uncertainties related to the pandemic would be exerting a toll on business and consumer confidence around the world. Lower business sentiment reading were reported in many of the March purchasing manager surveys. As for consumers, Japan today reported a 14-month low in consumer confidence to 32.8 in March from a reading of 35.3 in February and 39.1 at the end of 2021. Indonesian and Thai consumer confidence each fell to six-month lows in March.

Japan’s current account surplus of 1.648 trillion yen in February was 42% narrower than a year earlier. The seasonally adjusted goods trade deficit of JPY 775 billion compared to a deficit of JPY 399 billion in the prior month.

Romanian GDP contracted 0.1% in the final quarter of 2021, breaking a streak of five straight quarters of positive economic expansion. On-year growth of 2.4% in 4Q was down from 6.9% in 3Q and 15.4% in 2Q.

Italian retail sales recorded a year-on-year rise of 4.3% in February, the smallest such advance in four months.

But 12-month increases of 3.0% in Spanish industrial production and 13.1% in Danish industrial production in February were the most in three months and six months, respectively.

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



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