Rising Inflation Dampening the Mood of Consumers Around the World

May 20, 2022

Amid bear markets, investors periodically test the waters in search of good values. Today has been one such day. The week will end with huge net share price declines, but on this Friday equities closed up 3.0% in Hong Kong, 2.9% in India, 1.8% in South Korea, 1.6% in China and Singapore, 1.4% in Indonesia and 1.2% in Australia. Stock markets are currently up 1.4% to 1.9% in the U.K., Germany, France, Spain and Italy, and U.S. futures point to an early rise of around 1%.

Ten-year sovereign debt yields are up nine basis points in Italy, six basis points in the U.K. and Spain, four bps in the U.S. and Canada, and three basis points in Germany.

The price of gold is unchanged, while that of WTI oil climbed 0.4% overnight.

The dollar is mixed, with advances of 0.2% against the euro, yen and weighted DXY index but losses of 4.4% against the Russian ruble, 0.3% versus the Canadian and New Zealand dollars, and 0.2% relative to the Australian dollar and Turkish lira.

Among countries releasing price data today, inflation had risen further:

  • Japanese consumer price inflation doubled from 1.2% in March to a 90-month high of 2.5% in April. Core inflation as Japanese officials like to define it (with fresh food but not energy excluded) accelerated above the 2.0% target for the first time in 85 months to 2.1% from 0.8% in March and -0.9% in April 2021. When excluding energy as well, inflation was still considerably below 2% at 0.8% but had risen 1.5 percentage points from minus 0.7% in March.
  • German producer price inflation rose 2.6 percentage points in April, advancing to yet another record high of 33.5%. Non-energy producer prices were 16.3% above year-earlier levels.
  • Irish wholesale price inflation of 5.2% last month was at a 60-month high.
  • Polish PPI inflation of 23.8% in April was its highest since 1995 and up from 5.5% in April 2021.
  • South Korean producer price inflation rose 0.2 percentage points to a 5-month high of 9.2% last month.
  • Moroccan consumer prices recorded a 1.8% month-on-month increase in both March and April, lifting the 12-month rate of inflation from 3.0% in February to 5.4% in April. That’s a record high over the 171 months that the figure has been calculated in the current way.
  • Georgia proved to be the rare exception where inflation has fallen at least at the producer price level. April’s outcome was a 7-month low but still uncomfortably high at 15.4%.

Rising inflation erodes the purchasing power of consumers, especially ones on fixed income. Consumer confidence in Denmark had its weakest reading in May (-22.4) since at least the fourth quarter of 1974. Likewise, British consumer confidence deteriorated to its lowest level since 1981, breaking below the previous low touched initially in July 2008 and matched in April. In the Netherlands, consumer sentiment had weakened previously from a reading of +3 last June to a record low of -48 in April and remained almost as bad this month with a score of minus 47. Turkish consumer confidence of 67.6 this month was just 0.3 points above April’s record low, and Belgian consumer confidence printed at -10 in May, not far from March’s 17-month low of -16.

Analysts were expecting a weak British report on retail sales but were surprised by today’s news that such had rebounded 1.4% after back-to-back monthly declines of 0.3% and 1.2%. The average retail sales level in February-April was still 0.3% lower than the prior three-month period’s mean, and sales in April recorded the largest year-on-year decline (4.9%) in 15 months.

China’s policy approach to the coronavirus continues to be very harsh and is holding the economy hostage to any outbreaks, however small. Moreover, a previous overheated housing market had been hammered by the central bank. Now that sector needs support, and the People’s Bank of China today cut its five-year Loan Prime Facility Rate by 15 basis points to 4.45%. Both that rate and the one-year LPR had been reduced previously in January by 5 and 10 basis points, respectively.

Swiss industrial production rose 5.0% last quarter and 7.9% compared to the first quarter of 2021.

In energy-producing Indonesia, the current account swung from a deficit of $1.087 billion in the first quarter of 2021 to a surplus of $221 million last quarter.

And New Zealand experienced its largest trade surplus in April (NZD 584 million) since May 2020.

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

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