Amid Rising Inflation, Some Central Banks React and Others Do Not

April 14, 2022

The weighted DXY dollar index slid 0.3% so far today and is 0.9% below its year-to-date high hit in intraday trading yesterday. Losses of 0.2-0.3% today have occurred against the euro, yen, kiwi, loonie and sterling, while marginal upticks have occurred versus the Swiss franc and Australian dollar.

Stock markets closed up 1.2% in Japan and China, 0.7% in Hong Kong and 0.6% in Australia. Share prices are 0.3-0.5% firmer so far today in Germany, France, Spain and Switzerland.

Ten-year sovereign debt yields in Europe had climbed prior to the released monetary policy statement of the European Central Bank but now show dips of one or two basis points on net in Germany, France, Spain, Italy and the Netherlands. The ten-year U.S. Treasury yield also has fallen 3 basis points.

Prices for WTI oil and gold are 1.4% and 0.2% lower than at Wednesday’s close.

At this week’s meeting of the European Central Bank Governing Council, policymakers as expected speeded up the planned wind-down of monthly asset purchases, but the overall tone of the decision reads less hawkishly than expected. Planned asset purchases had previously been set at EUR 40 billion per month all this quarter and at EUR 30 billion per month in 3Q; now the purchases will decline from EUR 40 billion in April to 30 billion euros next month, 20 billion euros in June and be phased out entirely in 3Q. But the statement recommits to reinvesting maturing PEPP principals through all of 2024, stresses that policy decisions going forward will adhere to principles of “optionality, gradualism, and flexibility.” and does not seem to be in a hurry to raise interest rates of a -0.50% deposit rate, a zero percent refinancing rate and a MLF rate of 0.25%.

The Central Bank of the Republic of Turkey‘s one-week repo rate was again left at 14.0%, its level since 500 basis points of reduction done over the final four months of 2021. Juxtaposed against latest CPI readings of 61.1% on the CPI (most since March 2002) and 115.0% on the PPI (most since March 1995), 14% seems woefully low. Officials released a statement attributes the recent cycle of accelerating domestic inflation to a bunch of special non-monetary factors and “expects a disinflation process to start on the back of measures taken and decisively pursued for sustainable price and financial stability along with the decline in inflation owing to the base effect and the resolution of the ongoing regional conflict” in Ukraine.

Argentina, like Turkey, is experiencing one of the highest inflation rates in the world. In just March, consumer prices jumped 6.7% on month (most in two decades) and were 55.1% above year-earlier levels. Officials at the Central Bank of Argentina lifted their policy rate by another 250 basis points to 47.0%. The rate had been 38.0% at the end of 2021, by comparison.

Officials at the Bank of Korea today authorized the fourth 25-basis point hike of South Korea’s repo rate since last August. Analysts were not expecting an increase, and none had been made at the previous meeting in February. The new rate level of 1.5% is it’s highest since August 2019. CPI inflation in South Korea has climbed from minus 0.3% in May 2020 to 1.5% in March 2021 to 4.1% last month, double the long-term target, and officials do not anticipate a return to target “for a considerable time” according to a statement released today. Economic recovery is continuing, and “the Board will judge when to further adjust the degree of accommodation while thoroughly assessing developments related to COVID-19, the risk of a buildup of financial imbalances, monetary policy changes in major countries, geopolitical risks, and the trends of growth and inflation.”

The Monetary Authority of Singapore, which conducts monetary policy by targeting the external value of the currency rather than a domestic interest rate, took the unusual step today of changing two of the three defining parameters of its Singapore dollar policy, rather than just one. As it did last October and again in January, MAS officials increased the upward-leaning slope of the S$ trading corridor, but for the first time since April 2010 they also raised the midpoint of the trading band. Consumer price inflation in Singapore had accelerated from 0.7% in February 2021 through 2.5% last September to a 9-year high of 4.3% in February 2022. A statement warns that “The fresh shocks to global commodity prices and supply chains are adding to domestic cost pressures, and will bring MAS Core Inflation to a significantly higher level than its historical average through 2022. Underlying inflationary pressures remain a risk over the medium term.”

Sweden, Switzerland, Finland, Saudi Arabia, and South Korea reported higher inflation data today:

  • Swedish CPI inflation leaped 1.7 percentage points to 6.0% in March, the most since late 1991. Core consumer price inflation was at a 363-month peak of 6.1% versus 4.2% in February and 1.0% a year ago.
  • Switzerland’s combined PPI/import price index jumped 0.8% on month in March. A 6.1% year-on-year advance was the most in 365 months and embodied gains of 4.1% in domestic producer price costs and 10.2% in import prices.
  • Finnish consumer price inflation of 5.8% (a 379-month high) last month was up from 4.5% in February an 1.3% a year earlier.
  • Although only 2.0%, Saudi Arabian CPI inflation in March represents a 9-month high and nearly double the December inflation rate of 1.1%. PPI inflation in Saudi Arabia climbed to 12.1% from 11.5%.
  • On-year South Korean import price inflation reached 35.5% in March versus 30.7% in February.

Australian unemployment in March matched February’s 13-1/2 year low of 4.0%, but employment rose less sharply than expected.

Israeli GDP rose 8.2% in 2021 after falling 2.2% on average in 2020.

Foreign direct investment in China rose 25.6% on year in the first quarter, down from growth of 39.9% in the first quarter of 2020.

Buoyed by the energy price shock, U.S. import price inflation accelerated 1.6 percentage points to a 131-month high of 12.5%. On a monthly basis, the index jumped 2.6% after February’s 1.6% increase.

A 0.5% advance in U.S. retail sales last month was close to expectations, but February’s monthly advance was revised half a percentage point high to 0.8%.

There were fewer than 200 thousand new U.S. jobless insurance claims last week for a seventh week in a row. The four-week average of 172.25k new claims was down from 188.75k per week in the prior four weeks ended March 12 and a a weekly average of 625.25k a year earlier.

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

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