Tag: Inflation

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China will not ease up on realty – macrobusiness.com.au

Although there has been some noise about easing real estate curbs amid recent aggressive price cutting and subsequent protests, Li Daokui’s [academic advisor and member of the monetary policy committee of the People’s Bank of China] view is consistent with Premier Wen Jiabao’s view that curbs will be remain in place. He believes that economic growth will slow, and the growth model which relies on real estate development will end.

He added that inflation in China will probably fall from about 5.5% for this year to just 2.8% next year…..

via China will not ease up on realty – macrobusiness.com.au | macrobusiness.com.au.

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CPI now moves balance of probabilities for next rate cut from December to November – Westpac

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

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China: the case of the missing inflation – FT.com

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.

via China: the case of the missing inflation | beyondbrics | News and views on emerging markets from the Financial Times – FT.com.

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Australia: How the CPI hid the housing bubble – On Line Opinion

We can combine the main areas where housing has been stricken from the CPI – the removal of mortgage costs, quality adjustments to rent, and reduction in weight to home ownership costs – to see what difference it would make had the pre-1998 methodology been continued. The resulting MacroStats cost-of-living index is plotted below against the headline CPI.

MacroStats Cost-of-living index

….We can again see how this measure tracks the official CPI very closely until 1998. Since 1998 it is 0.73 percentage points higher on average (or 3.8%), and in the period 2001-2008, it averaged 1.3 percentage points higher (or 4.4%pa). That gives you some idea of how significant the 1998 methodological shift in the CPI was in disguising housing inflation and creating a feedback loop with lower monetary policy.

via How the CPI hid the housing bubble – On Line Opinion – 20/10/2011.

We need to be wary of bodies like the RBA lobbying to change the composition of the CPI. Performance measurement has to be independent in order to be effective.

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The Sceptical Inflationist | Steve Saville | Safehaven.com

The reason we are in the inflation camp is that the case for more inflation in the US doesn’t depend on private-sector credit expansion; it depends on the ability and willingness of the Fed to monetise sufficient debt to keep the total supply of money growing. A consistent theme in our commentaries over the past 10 years has been that the Fed could and would keep the inflation going after the private sector became saturated with debt.

Up until 2008 there was very little in the way of empirical evidence to support the view that the Fed COULD inflate in the face of a private sector credit contraction, but that’s no longer the situation. Thanks to what happened during 2008-2009, we can now be certain that the Fed has the ability to counteract the effects on the money supply of widespread private sector de-leveraging. The only question left open to debate is: will the Fed CHOOSE to do whatever it takes to keep the inflation going in the future?

via The Sceptical Inflationist | Steve Saville | Safehaven.com.

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Fed Shifts Bond Portfolio – WSJ.com

The Fed is trying to ease financial conditions without taking the more controversial step of increasing the amount of money that it’s pumping into the financial system, since it will be using money already generated from other programs. A bond buying program the Fed completed in June was widely criticized internally and externally because it pumped $600 billion of newly printed money into the financial system, sparking fears of inflation……..

The more potent step of launching a new round of bond purchases that would further expand the Fed’s $2.867 trillion balance sheet remains a possibility, but inflation likely would need to slow much further to spur Fed officials to take that step……..

Economists aren’t so sure that the Fed’s latest gambit will do much to spur growth.

“The odds are ‘Operation Twist’ won’t work,” Anthony Sanders, a real-estate finance professor at George Mason University, said before the Fed action. The housing market has shown no reaction to interest rates that are already at record-low levels, he said. Freddie Mac’s latest survey finds the average rate on 30-year, fixed-rate mortgages at 4.09%, the lowest level in more than 50 years.

via Fed Shifts Bond Portfolio – WSJ.com.

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China’s Lessons From Mexico and Japan – WSJ.com

China might have more to worry about. Wages in the low-skill manufacturing sector are rising fast. On their current trajectory, they will double in the next five years. Low-skill jobs have already started to migrate elsewhere and will continue to do so. Public spending on education, at 3% of GDP in 2009, compares unfavorably to an average of 5% in the grouping of upper-middle-income countries to which China aspires. Reform of the financial system has fallen by the wayside as banks continue to funnel savings to low-yielding state-sponsored projects.

via Heard on the Street: China’s Lessons From Mexico and Japan – WSJ.com.

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