Some Fresh Concerns
January 27, 2023
While awaiting the monthly U.S. report on personal income, personal consumption, and the Fed’s favored PCE price deflator, investors got some disquieting price news from other countries.
In Japan where consumer price data for Tokyo are reported a month earlier than national statistics, today’s January figures showed an acceleration of the total CPI to a 499-month peak of 4.4%, core CPI (excluding fresh food) to a 500-month high of 4.3%, and the CPI index that excludes energy as well as fresh food to a 369-month high of 3.0%. Energy and food prices were 26.0% and 7.3% above January 2022 levels. The seasonally adjusted monthly price increases were 0.7% for all items and 0.5% for each of the underlying inflation indices.
West Texas Intermediate crude oil climbed 1.4% overnight and is above $82 per barrel.
Between the final quarters of 2021 and 2022, Australian producer prices, import prices and export prices advanced 5.8%, 14.9%, and 20.5%. Between the final quarters of 2019 and 2020, by comparison, the respective changes in those indices had been -0.1%, -1.0% and +0.3%.
The Bank of Chile kept its policy rate unchanged at a double-digit 11.25%. It’s been at that level since a 50-basis point hike last October that culminated a string of increase that began from 0.50% in July 2021. Chilean CPI inflation of 12.8% as of December was down from 14.1% last August but still well above officials’ medium-term target of 3.0%. Today’s post-decision statement explains, “inflation remains very high and its convergence to the 3% target is still subject to risks. The Board will maintain the MPR at 11.25% until the state of the macroeconomy indicates that this process has been consolidated.”
The Central Bank of Argentina’s policy interest rate began 2022 at the lofty level of 38% and by September had been raised to an even more stratospheric 75%. The third quarter also saw officials impose rate hikes of nine percentage points in July, 9.5 percentage points in August and 5.5 percentage points in September. The 75% interest rate hasn’t changed since September, including at yesterday’s first review of 2023, and it remains considerably below the December year-on-year consumer price inflation rate of 92.4%.
Other economic news reported today outside the United States accentuated a slower pace of demand and production.
- Austria’s manufacturing purchasing managers index in January (48.4) was below the 50 no growth line for a sixth straight month, albeit less so than in November or December.
- In France, consumer sentiment slipped to a 4-month low in January.
- South Korean business confidence fell five index points to a 29-month low in January.
- A string of five straight months of year-on-year declines in Irish retail sales through November was broken last month, but the 0.5% uptick paled in comparison to a 20.6% on-year jump in the first month of 2022.
- Swedish retail sales dropped 1.8% on month and by 8.0% on year in December. That was the eighth year-on-year slide in a row.
- Norwegian retail sales fell 3.6% on month in December and were 7.7% fewer than a year earlier.
- Back-to-back monthly drops in Italian industrial sales of 1.1% in September and 0.8% in October were followed by a 0.9% increase in November. The 11.5% latest 12-month rate of increase was down from 12.5% in October and 22.9% in August 2022.
- Spanish GDP growth last quarter of 0.2% matched the third-quarter result, and year-on-year growth as a result slowed to 2.7% from 4.8% in 3Q and 7.6% in 2Q.
- Mexico’s trade deficit swelled from $10.94 billion in 2021 to $26.42 billion last year.
- Money and credit growth in the euro area is decelerating under the weight of aggressive monetary tightening by the European Central Bank. A 4.7% year-on-year advance in M3 money last quarter was down from 6.0% in 3Q and 5.9% in 2Q, and there was a loss of momentum late in 4Q attested by December’s 4.1% growth pace. A 3.8% on-year rise in bank loans to households was the least in 19 months. On-year lending growth to non-financial corporations slowed to 6.3% from 8.9% in October.
- Although up from a record low of -70.2 in December and at its best level since October, New Zealand’s business confidence index this month of -52 remained deep in pessimistic territory.
Today’s good piece of news is that December U.S. personal income and spending data reflect as much moderation as analysts were expecting and, even more importantly, that the PCE price deflator exhibited a much additional inflation deceleration has anticipated.
- Income growth of 0.3% in November and 0.2% last month was down from 0.4% in both August and September plus October’s 0.8% spike.
- Personal consumption expenditures, which had recorded average monthly increases of 0.7% in August-October, then fell 0.2% in November and by an even larger 0.2% (-0.3% in real terms) in December. Fed officials need to see demand slow down to the more limited supply vector; that’s the dynamic for how tighter monetary policy will depress inflation.
- The PCE price deflator went up just 0.1% for the second month in a row, and its year-on-year increase slowed half a percentage point further to 5.0% from 5.5% in November and 6.3% in both August and September. Core PCE inflation of 4.4% in December was down from 4.7% in November and 5.2% in September.
Overnight financial market changes weren’t affected much by the U.S. data. A net weighted dollar advance of 0.1% earlier has ticked up to +0.2%. U.S. stock futures still point to a lower open, less than half a percentage point in the case of the S&P 500 and Dow but a tad more in the Nasdaq’s instance. The 10-year Treasury yield had been up five basis points and now shows a net 4-bp increase. A 0.3% drop in Bitcoin’s price subsequently doubled in size, while WTI oil still shows the same net rise of 1.4%. Gold is little changed.
Still to come: U.S. pending home sales and the U. Michigan index of consumer confidence.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Australian PPI, Central Bank of Argentina, Central Bank of Chile, Spanish GDP, U.S. personal spending and consumption
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