Inflation and Industrial Production Headline Busy Day of Data Releases and Central Bank News
February 10, 2023
Today has been a difficult day for stocks and bonds. Hong Kong’s Hang Seng index closed 2.0% lower, and the German, French, Italian, and Spanish stock markets are each down over 1.0%. U.S. stock futures were down 0.5-1% prior to the U.S. open. Ten-year sovereign debt yields had advanced by seven basis points in Italy and Spain, five basis points in Germany and the U.K. and three basis points in the United States.
A 0.2% uptick overnight in the DXY weighted dollar index reflects euro weakness and presents a misleading picture of the dollar, which otherwise shows losses of 0.0.6% against hte yen, 0.2% versus the Canadian dollar and 0.1% relative to sterling and the Australian and New Zealand dollars.
Oil, which has played a catalytic role in the spike of inflation since 2021, jumped 1.0% in price on news of a Russian production cut. The price of gold, in contrast, fell 2.7%.
Politicians in the opposition around the world but especially in the United States have tried, with quite some success, to score points, by blaming elevated inflation on government policies. The fact is that global forces were mainly responsible for the rise in inflation, and a wide spectrum of price data releases today attests to the reality that hardly any individual countries proved immune to the inflationary tsunami. In many cases, inflation has begun to recede, but in virtually none can one say that price stability has been restored. In assessing the following results, one should concentrate on the latest on-year levels of inflation. They are not yet satisfactory, but how can particular governments be blamed honestly for a phenomenon shared by all countries?
- Japanese domestic producer price inflation slowed in January to a 6-month high but was nonetheless at 9.5%. Import and export prices were 17.8% and 9.5% higher than in January 2022.
- Although down from 10.1% in October, Portuguese consumer price inflation still printed at 8.4% last month.
- Danish CPI inflation has slowed also from 10.1% in October to 7.0% last month.
- Norwegian CPI inflation of 7.0% was down from 8.2% a year earlier but above December’s 5.9% reading.
- Chinese CPI inflation accelerated to 2.1% in January from 1.8% in December, 1.6% in November and 0.9% in January 2021. Chinese producer price inflation was less negative at -0.8% in January than readings of -1.3% in both October and November. Food prices in China jumped to a 6.2% year-on-year advance from 4.8% in December.
- In Belarus, CPI inflation has slowed from as much as 18.1% last July to an 11-month low six months later, but January’s reading was still in double-digit territory at 12.0%.
- Rwanda‘s 31.1% on-year inflation rate in January remained very near November’s record high of 33.8%.
- Moldovian CPI inflation of 27.3% last month was its lowest in nine months but practically speaking not a whole lot more acceptable than the record 35.0% reading last October.
- Albanian inflation of 7.2% in January represented an 8-month low but not a great deal of improvement from 8.3% in October.
- In Hungary, whose prime minister (Viktor Orban) has been embraced by the U.S. Republican Party as a man embodying good values, consumer price inflation of 25.7% in January was the highest 12-month rate of increase in 323 months.
- And Czech CPI inflation last month accelerated 1.7 percentage points to a 4-month high of 17.5%, just a half percentage point less than last September’s peak of 18.0%.
Important central bank news has been made. The initial choice to be the next governor of the Bank of Japan, the current Deputy Governor Masayoshi Amamiya, turned down the offer. He likely would have continued the 10-year-long ultra-loose stance. The second choice, who has accepted, Kazuo Ueda, endorsed the current policy but will feel less obligated to maintain such, and the yen rallied in response to the switch.
The Bank of Mexico‘s 50-basis point policy rate hike to a record 11.0% surpassed market expectations (see review). The National Bank of Romania left its 7.0% policy interest rate unchanged, having hikes such by 25 basis points at last month’s meeting and by 575 basis points since October 2021.
Russian monetary policy in 2022 was truly extraordinary, catapulting 1150 basis points to 20.0% in February but ending the year lower than its starting point at 7.5%. The Bank of Russia‘s left its policy rate unchanged at 7.5%. Although CPI inflation remains in double digits at 11.9% just last month, officials characterized the recent behavior of core inflation as moderate, observed a slight dip in price expectations, and are projecting that inflation may drop as low as 5% this year and reach 4% in 2024. But their released statement also hedges, “If pro-inflation risks intensify, the Bank of Russia will consider the necessity of key rate increase at its upcoming meetings.”
Peruvian monetary policy wasn’t changed either at this month’s review, interrupting a string of eighteen straight hikes of the policy interest rate from 0.25% in August 2021 to 7.75% after a 25-basis point increase at January’s review. Peruvian CPI inflation of 8.7% overall and 5.8% core are still above target, and a statement released by the Board of Directors cautions, “this pause does not necessarily imply an end to the BCRP’s monetary tightening cycle.”
The quarterly Monetary Policy Statement published today by the Reserve Bank of Australia calls inflation “too high and broadly based.” The projected path of inflation in the short term has been revised a little upward. Labor markets in Australia remain too tight, and a risk of rising long-term inflation expectations persists. Further increases in the central bank’s official cash rate will be needed.
As in the United States, Canadian labor market statistics for January simply sizzled. 150k jobs on net were created, which is equivalent to a 1.16 million monthly leap in the much larger U.S. labor market. An unchanged 5.0% jobless rate remained near to last July’s record low of 4.9%, and wage growth accelerated three-fourths of a percentage point to 4.2%.
Several European countries reported industrial production figures for December, which compared to a year earlier were up by a greater-than-forecast 0.1% in Italy and 0.7% in Finland but down 4.0% in the U.K., 1.4% in Greece and 3.6% in Austria. Elsewhere, Indian industrial production was 4.3% higher in December 2022 than in December 2021, and Mexican industrial production climbed 3.2% in the same span.
British GDP neither rose nor fell between the third and fourth quarters of 2022. GDP growth between 4Q 2021 and 4Q 2022 of just 0.4% was the least in a streak of seven straight on-year advances, and calendar year growth of 4.0% in 2022 was down from 7.6% in 2021. Britain’s goods and services trade deficit swelled to a 6-month high of GBP 7.15 billion, bringing the 2022 deficit to GBP 84.7 billion after a GBP 28 billion shortfall in 2021.
Malaysian GDP contracted 2.6% last quarter, its first negative growth in five quarters, and that slashed on-year growth in half to 7.0%.
Chinese bank lending soared to a record high CNY 4.9 trillion in January, reflecting the removal of Covid restrictions.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Russia, British GDP, Canadian labor statistics, Japanese PPI, National Bank of Romania, Reserve Bank of Peru
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