March consumer price index (CPI) is due for release on Friday. Producer prices, released Tuesday, ticked upwards after a sharp December/January fall on the back of plunging crude oil prices.
Average hourly earnings growth (non-supervisory manufacturing jobs), however, retreated below 1.0%.
CPI is likely to remain heavily affected by oil prices, but core CPI (excluding food and energy) is expected to remain close to the Fed’s target of 2.0%.
The Eurozone experienced negative CPI growth over December/January.
Australia shows consumer price growth declining at the end of 2014. The next CPI update (Q1 2015), at end of April, is likely to reflect further slowing.
Declining inflation expectations reported by Westpac (in the 0 to 5% range) tend to support this.
From Seeking Alpha:
The euro fell to a fresh 12-year low on Wednesday, extending a broad decline just days after the ECB launched its €1T bond-buying program, while the dollar index soared to its highest in more than 11 years at 98.95, buoyed by expectations that the Fed could soon lift U.S. interest rates. Nearly all now believe the FOMC will remove the word “patient” from its policy statement after its March 17-18 meeting, opening the door for a rate increase in June.
Not so fast. US consumer price growth (annual % change) to end of January 2015 fell below zero.
Core CPI is slowing at a far gentler rate because it excludes energy prices (as well as food).
Wage pressures in the manufacturing sector are declining, despite solid job numbers, indicating there is still plenty of slack.
With inflationary pressures easing, why the haste to raise interest rates? I believe that Janet Yellen will move when the time is right. And not before.
West Texas Crude has been falling since breaking support at $75/barrel, following through below $50/barrel. A test of 2009 lows at $30/barrel is likely unless there is major disruption to supply.
When we adjust crude prices for inflation, they remain high by historical standards. Prior to the China boom of the early 2000s, the ratio of WTI Crude to CPI had seldom ventured above $20/barrel when measured in 1982-1984 dollars (shown as 0.2 on the chart below). After the dramatic fall of the last 3 months, the adjusted price at the end of December 2014 (in 1982-1984 dollars) is still $25.20/barrel (0.252 on the chart) — well above the former high.
Low interest rates increase demand for gold by lowering the carrying cost. A rising dollar, however, has the opposite effect.
Gold respected resistance at $1250/ounce, confirming the primary down-trend. Another 13-week Twiggs Momentum peak below zero strengthens the signal. Breach of primary support at $1180 would offer a long-term target of $1000*. Recovery above 1250 is unlikely, but would test the descending trendline around $1300.
* Target calculation: 1200 – ( 1400 – 1200 ) = 1000
Gold Bugs Index, representing un-hedged gold stocks, fell sharply since breaching long-term support at 190. Declining 13-week Twiggs Momentum (below zero) signals a strong primary decline. Bearish for gold.
The price of gold adjusted for inflation (gold/CPI) remains relatively high and further falls are likely.
From Quartz:
The “First Law of Petropolitics,” coined by New York Times columnist Tom Friedman… states that when oil prices are high, the leaders of petro-states can become demanding and belligerent; when they are low, they are more prone to be pussycats.
Oil prices at elevated levels explain Russian belligerence. The graph below shows Brent Crude prices adjusted by the (US) consumer price index to reflect growth in real crude prices over the last decade. To bring crude prices down to pre-2005 levels will be no small feat.
Read more at How the US might persuade the Saudis to co-conspire in unleashing an oil weapon against Putin – Quartz.
Robert Cookson: Chinese policy makers spend a lot of their time worrying about inflation. But the growing risk now appears to be deflation….
The PPI index has already turned negative [and] year-on-year growth in money supply has plunged to a level that in the past been consistent with CPI of between zero and 1 per cent…..
via Is China sliding towards deflation? | beyondbrics.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
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Yields on the 10-year Commonwealth bond hit a record intraday low of 3.78 percentage points yesterday…….CPI inflation for the September quarter was still running at 3.5%. That means investors are close to giving the Australian government money for free.
On top of that….. Investors seem happy to park their money with the Australian government despite the large risk that the dollar will take a serious tumble (though of course they are themselves mitigating that risk somewhat through their own purchases). If investors are separately hedging, which, frankly, they’re mad if they’re not, that will add further cost to the transaction, enough surely, to push the return negative.
via Australia: The safe haven – macrobusiness.com.au | macrobusiness.com.au.
In the August Statement on Monetary Policy the Bank [RBA], relying on two recent prints of 0.9%qtr for underlying inflation, forecast that annual core inflation would print 3.25% in both 2011 and 2012. We are now confronted with the reality that annual core inflation for the year to September 2011 has printed 2.47% with a reasonable estimate that given the slowdown in the economy the fourth quarter will print around 0.5%qtr. That will allow the Bank to lower its inflation forecast for 2011 to 2½%yr with a similar outcome likely in 2012.
Given the Governor’s recent statement that an improving inflation environment allowed scope to ease policy it now seems almost certain that Westpac’s forecast which was made on July 15 — that we could expect a rate cut by the end of 2011 — will prove to be correct.
In fact given the Bank’s previous record of moving rates every November for the last five years and given that the case for a rate cut is indisputable the balance of probabilities has now moved to a November cut from our original call of December.
via Westpac Economics – first impressions
While most analysts pored over the numbers to get a sense of how growth was holding up, at least two spotted a large discrepancy between reported price changes and implied price changes.
The gap is more than just an academic curiosity. It suggests that inflation is a lot stronger than the government has been saying and could explain why Beijing has been so reluctant to loosen policy despite a slowing economy.
….China chalked up an implied GDP deflator of 10.3 percent year-over-year in the third quarter, the highest since it started publishing quarterly growth figures in 1999, noted Wei Yao, an economist with Societe Generale. That was well above the 6.3 percent rise in the consumer price index during the same three months.
Diana Choyleva, an economist with Lombard Street Research, found that the chasm was even bigger in quarter-on-quarter terms: the GDP deflator was up 3.8 percent, while CPI was up just 1.5 percent.
….the gap between the deflator and CPI is usually innocuous, just a couple of percentage points.
