Lower Inflation But Spreading Troubles for Regional Banks
May 11, 2023
Investors remain edgy. PacWest is the latest bank to report a big exodus of deposits. Disney stock dropped sharply. The standoff in the debt ceiling talks hasn’t shown any sign of cracking. Equities closed down 0.8% in China, Indonesia, Taiwan and Australia. The German Dax and Dow Jones Industrials are also off 0.8% so far today. Ten-year sovereign debt yield declines of 0.9% in the U.K. and 0.7% in the United States and Germany partly reflect the move out of stocks and into presumed safer assets. Prices for bitcoin, West Texas Intermediate oil and gold are 1.8%, 1.7% and 0.5% weaker.
U.S. producer price figures for April released today, like yesterday’s CPI report, revealed some progress on the road to price stability. The all-PPI 12-month rate of rise slowed to a 27-month low of 2.3% from 2.7% in March and 11.2% in April 2022. Core producer price inflation of 3.2% was at a 25-month low.
Price data from a slew of other economies also showed decelerating trends.
- Chinese CPI inflation dropped to a 26-month low of 0.1% in April from 0.7% in March and 2.8% last September.
- Chinese producer prices were 3.6% below their April 2022 level.
- Irish CPI inflation slid a half percentage point to a 1-year low of 7.2% versus 9.2% last October.
- A 13-month low of Portuguese consumer price inflation (5.7%) was down from 7.4% in March and 10.1% last October.
- CPI inflation in Moldova has been practically halved from 35% last October to 18.1% last month.
- Latvian CPI inflation has declined from 22.2% in September 2022 to 17.3% in March and 15.1% last month.
- Czech CPI inflation fell to 12.7% last month from 18.0% last September.
A summary of last week’s Bank of Japan Board meeting expresses the view that the consequences of not achieving the 2% long-term inflation target would be more costly than the ramifications of exceeding that goal. Consequently, it remains appropriate to continue the current ultra-loose monetary stance.
Monetary tightening has been paused in Serbia after rate hikes totaling 400 basis points in 2022 followed by a 25-basis point increase in each of the first four months of 2023. Although CPI inflation in Serbia exceeded 15% last quarter, global cost pressures are lessening, and officials anticipate a very sharp drop of inflation in the second half of this year, according to a released statement from the National Bank of Serbia’s Executive Board. The rate remains at 6.0%. “Depending on movements of key monetary and macroeconomic factors at home and abroad, as well as the global geopolitical situation, the NBS will assess whether there is a need to tighten monetary conditions further and to what extent.”
As expected, the Bank of England’s Base Rate was increased by 25 basis points to 4.50%, although two of the nine members of the Monetary Policy Committee voted to leave the rate at 4.25%. By tightening again on top of 75 basis points of increase earlier this year and rate hikes from 0.10% at the start of December 2021 to 3.50% by the end of last year, officials reacted to twin concerns related to a tight labor market and elevated service sector price inflation. Today’s meeting coincided with publication of the quarterly Monetary Policy Report in which officials no longer anticipate recession but see significantly higher inflation in 2023 than predicted three months ago.
Worries about a possible U.S. recession weren’t helped by news of an 18-month high 264k of new jobless insurance claims last month.
Japan’s current account surplus of JPY 2.278 trillion in March was 29.6% smaller than a year earlier. The Japanese fiscal year ends each March, and the fiscal 2023 deficit of JPY 18.07 trillion dwarfed the fiscal 2022 deficit of 1.54 trillion. In a separate release, Japan’s Economy Watchers index (a gauge of service sector worker sentiment) imporoved to a 15-month high in April.
A 12.5% year-on-year rise in New Zealand food prices in April was the most in 427 months.
Chinese motor vehicle sales last month were 82.7% greater than a year earlier, reflecting the boost from ending zero-covid tolerance.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of England, Chinese CPI and PPI, Japan's current account, National Bank of Serbia, U.S. PPI