Muted Reaction to U.S. CPI Report But Further Significant Data Coming Soon
March 13, 2024
In overnight financial market action, movements in the dollar, U.S. stock futures, and long-term interest rates were minimal even though total and core U.S. CPI figures out yesterday were marginally above expectations. Still ahead this week are the releases of U.S. retail sales, producer prices, industrial production, consumer confidence and import prices plus Chinese retail sales and industrial production, Swiss PPI, and French and Italian consumer prices.
Alternative stores of value have been in demand of late. The price of Bitcoin powered higher into unchartered territory, climbing 2.5% overnight. The price of oil also rose more than one percent, buoyed by a drone strike on a major Russian refinery. At $2,169 per ounce, gold is hovering not far from its alltime peak of $2,195.
Equities this Wednesday fell 1.2% in India, 0.4% in China, 0.3% in Japan, and 0.1% in Hong Kong. The British FTSE and German DAX are up 0.1%. 10-year U.S. Treasury, Japanese JGB, and German bund yields are unchanged, but their British counterpart is five basis points higher.
The 30-year fixed U.S. mortgage rate slumped 18 basis points last week to 6.84%, its lowest level since the first week in February and after three consecutive weeks above 7.00%.
Industrial production in the euro area dived 3.2% in January, twice as steeply as analysts anticipated and the largest monthly slide in ten months. The data were skewed, however, by a whopping 29.0% plunge in Ireland. Output in Spain and Germany, by contrast, rose 0.9% and 0.6%, while French output declined 1.0%. January’s level of industrial production in January was 2.0% below the fourth quarter’s mean and 6.7% lower than a year earlier.
British industrial production fell 0.2% in January, its weakest monthly change in three months and resulting in a year-on-year increase of just 0.5%. Construction output performed more admirably with a rise of 1.1% on month and 0.7% on year. Monthly British GDP growth improved to 0.2% but was associated with a fifth straight 3-month average decline, albeit of just -0.1%. British January trade data also arrived today, showing larger merchandise (-GBP 14.5 billion) and goods and services (-3.13 billion) deficits than those posted in the prior month of December but smaller gaps than in January 2023.
Price data reported today around the world accentuate extremes at both ends:
- Inflation is extremely elevated in Argentina. Consumer prices climbed to a 394-month year-on-year jump of 276.2% in February, but central bank officials there felt sufficiently hopeful about a deceleration in the month-on-month increase of 13.2% after 20.6% in January and 25.5% in December to slash their overnight repo rate by 20 percentage points to 80% earlier this week.
- In Angola (24.1%) and Ghana (23.2%) as well, CPI inflation last month remained above 20%.
- But food price inflation in New Zealand slowed to a 33-month low of 2.1%, having crested at 12.5% in mid-2023.
- And officials at the National Bank of Georgia implemented a bigger interest rate cut of 75 basis points this month than those of 50 bps at the prior two policy reviews. They cited the very low CPI inflation rate of 0.3% versus a target of 3.0% and a high-water mark of 13.9% recorded in December 2021 and January 2022. The NBG’s interest rate had been at 11.0% from March 2022 until May 2023. At 8.25% now, it is withing 25 basis points of the pandemic low of 8.0% maintained from August 2020 until an initial rate hike in March 2021.
- In between those extremes, Romanian CPI inflation eased back 0.2 percentage points to 7.2% in February. A 6.6% inflation rate in December had been the lowest in 27 months and down from 16.8% in November 2022.
In further justifying today’s Georgian interest rate cut, a released statement also cites falling measures of expected inflation but also guards against over-complacency:
The low inflation environment helps the inflation expectations decline, which further significantly lowers the inflationary risks in the medium term. Other things equal, inflation is expected to remain below the target of 3 percent at the beginning of 2024, while stabilizing close to it in the medium term. Should factors amplifying inflation expectations and external sector risks become apparent, other things equal, maintaining the current tight stance for a longer period or further policy tightening may become necessary.
Tags: British trade deficit and industrial production, Euroland industrial production, National Bank of Georgia
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