Wednesday Double Feature: U.S. CPI Release & Publication of Fed Beige Book
July 12, 2023
Stock markets overnight fell 0.8% in Japan and China but in Europe thus far have climbed by 0.5% (Spain) to 1.2% (Germany). Yesterday’s U.S. share price gains have been modestly extended by U.S. futures. Ten-year sovereign bond yields are lower by 4 basis points in the U.K. and Italy, 3 basis points in France and Spain, and 2 bps in the United States where another sizable drop in CPI inflation is anticipated in today’s report.
However, in Japan where the quarterly Bank of Japan Branch Managers Survey of regional economic conditions released earlier in the week revealed a broader range of wage hikes and firms increasingly inclined to lift prices, speculation about a coming shift away from stimulus, and the 10-year JGB yield (0.46%) rose one basis point closer to the bank’s 0.50% cap.
The dollar in overnight action eased by 0.6% against the yen, 0.3% versus the Chinese renminbi, and 0.1% relative to the euro, Swiss franc, Turkish lira, and Australian dollar. Bitcoin, oil and gold prices are up by 0.3%, 0.2% and 0.1%.
As expected, the Reserve Bank of New Zealand’s scheduled policy review ended with no change in the 5.5% Official Cash Rate level but a pledge by officials to keep their policy stance restrictive for the foreseeable future. Beginning with a doubling of the OCR in October 2021 to 0.50%, the rate was increased at a dozen consecutive policy reviews, including hikes earlier this year of 50 bps in February and April and 25 bps in May. But May’s statement of explanation had signaled an end to that tightening streak, noting that inflation has likely peaked but suggesting that the OCR is unlikely to be released until just after the middle of 2024.
Price data reported today prior to the eagerly awaited U.S. CPI showed
- A third straight deceleration in Serbian consumer price inflation to 13.7% last month from a record 16.2% high posted in March.
- A 17-month low in Portuguese CPI inflation of 3.4% (confirming the preliminary estimate) compared to last October’s 369-month peak of 10.1%.
- Spanish CPI inflation of 1.9% in June was likewise unrevised from the earlier estimate, and that represents a 27-month low, although core inflation of 5.9% has proven comparatively more resistance to downward pressure.
- Lithuanian producer prices (down 9.4%) posted their largest 12-month rate of decline in June in 33 months.
- Japanese producer prices slipped 0.2% on month and rose 4.1% on year in June, marking the smallest 12-month advance in 26 months. The year-on-year change in Japanese import prices swung from +44.9% in June 2022 to -11.3% in June 2023.
- Mongolian CPI inflation slowed to a 19-month low of 10.6% in June.
Another data release of note this Wednesday has been a disappointing 7.6% monthly drop in core private Japanese machinery orders during May. Analysts were looking for a small rise. Instead, this was the third drop in four months and associated with an 8.7% slide from May 2022.
A 0.2% downtick in Turkish industrial production in May was its third year-on-year decline in the last five reported months, despite a 1.1% monthly rise.
The 30-year U.S. fixed mortgage rate leaped 22 basis points in the first week of July to 7.07%. Even so, mortgage applications revived 0.9% after falling 4.4% in the last week of the second quarter.
U.S. consumer price inflation decelerated more sharply than forecast during June, falling a full percentage point to a 12-month increase of 3.0% for all items and by half a percentage point to 4.8% excluding food & energy. Shelter (up 0.4% on month and 7.8% on year) was the main inflationary impulse last month. Alternatively, food price inflation slowed to 5.7% from 6.7% in May and 7.7% in April, while energy prices recorded a bigger 16.7% year-on-year drop after declines of 11.7% in May and 5.1% in April. Overall CPI inflation peaked at a 41-year high of 9.1% in June 2022. Core CPI inflation was still cresting a year ago at 5.9% on its way to a peak of 6.6% in September. One pleasant surprise among service sector costs in the latest release was an 8.1% monthly drop in airfares. Overall core inflation in the five months from December 2022 through April 2023 had fluctuated narrowly between 5.5% and 5.7% even as overall CPI dropped from 6.5% to 4.9%. Over the ensuing two months, overall CPI inflation declined by 1.9 percentage points mainly due to base effects of big monthly increase in May and June 2022 dropping out of year-on-year comparisons, but the 0.7 percentage point decline of core inflation is a welcome development. That said, 4.8% core CPI isn’t going to persuade Fed officials to ease up especially in the absence of continuing indications of very tight labor market conditions.
The Bank of Canada‘s interest rate announcement later this morning will be accompanied by new forecasts and publication of the quarterly Monetary Policy Report.
The Fed Beige Book of regional economic conditions in the United States gets published this afternoon. Also, Minneapolis District President Kashkari and Cleveland District President Mester are among Fed officials who will be speaking publicly today.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Japan branch managers survey, Japanese machinery orders and PPI, Reserve Bank of New Zealand, U.S. CPI
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