Earlier this week Paul Krugman went out of his way to point out that if China stopped buying US bonds, it wouldn’t be the end of the world.
We wanted to come back to some of his points, because well, we think they are pretty good. Read more
A couple of charts from Barclays economists showing the relative contribution of food to headline and core CPI:
The biggest change is in the very first paragraph. In June the Fed had written that the economy “has been expanding moderately”. Now economic activity has “decelerated somewhat over the first half of this year.” Read more
Presenting an economic journey in felt, looking at whether the system’s ails have more to do with an abundance of goods than a shortage of credit because of the system’s technological advances and efficiencies. Move ahead to slide 20 for a snapshot of where we *think* we are today.
1) The water source. Read more
Ah, the elusive liquidity trap. Does it exist? Is it here? And what does it mean for monetary policy?
Those are critical questions which are not currently being addressed by policymakers, according to a new paper by Paul McCulley and Zoltan Pozsar, presented at the Banque of France on March 26. In fact, many policymakers, they say, are still under the mistaken belief that no such thing as a liquidity trap exists. Read more
Andrew Sentance, senior economic adviser at PwC and former member of the Bank of England Monetary Policy Committee, has just penned this strongly worded think-piece in the FT about the current lack of action stemming from central banks with respect to rising commodity prices.
Safe to say he feels it’s about time central banks stopped turning a ‘blind eye’ to the inflation problem this poses. Read more
Chinese inflation increased at its slowest pace since June 2010 in February, reports Bloomberg. Consumer prices rose 3.2 per cent, both below Bloomberg’s 3.4 per cent forecast and compared to January’s 4.5 per cent rise. Inflation peaked at an annualised rate of 6.5 per cent in July last year and has been steadily moderating since then, giving China room to consider monetary easing if growth tumbles, says the FT. Friday’s data also offer the first glimpse of the world’s second-largest economy this year without the seasonal distortions of Chinese New Year. Read more
On French inflation during the 1920s, that is.
Central bankers continue to be oh-so-blasé about their ever-expanding balance sheets, swiping aside all those worries of triggering a surge in inflation. Read more
The FT reports that Chinese inflation jumped in January, breaking a streak of five straight monthly declines, but seasonal factors were largely to blame and price pressures were expected to weaken in the coming months. The consumer price index rose 4.5 per cent from a year earlier, up from December’s 4.1 per cent pace. The main cause of the rebound was a shopping blitz before last month’s Chinese New Year holiday, which pushed up food prices, an effect which has regularly been seen in the past and is likely to be temporary. Core inflation, stripped of food costs, rose much more slowly, giving Beijing some room to stimulate the slowing economy if necessary. “It is very likely that after the holiday, prices will come down, especially for food. Next month’s number should be lower and that will ease concerns,” said Ken Peng, an economist with BNP Paribas. Read more
The threat of food inflation, a serious concern for emerging countries last year, is starting to recede as high prices for grains restrain consumption and better crop yields in Europe and Russia replenish stocks, the FT reports. The UN’s Food and Agriculture Organisation said on Thursday its food index had fallen last month to its lowest level in more than a year, reflecting reduced inflation across Asia. At the same time, the US reported that its domestic production and stocks of corn, a key commodity for the global food chain, were higher than previously thought, sending prices sharply down. Benchmark corn futures fell by their daily maximum limit to a three-week low of $6.11½ a bushel, down more than 6 per cent. Wheat, which had previously been supported by expectations of low corn stocks, fell 5.6 per cent. Read more
Consumer price inflation in China steeply fell from 5.5 per cent in October to 4.2 per cent in November, the FT says. Data also showed growth in industrial production fell below to 12.4 per cent in November from a year earlier, substantially slower than the 13.2 per cent recorded in October. Growth in industrial output is now the slowest in two years, reports Reuters. With no let-up in the eurozone debt crisis, the Chinese economy is increasingly expected to post less than 9 per cent growth in 2012, for the first time since 2001. Read more
Crystal-ball charts via Mark Cliffe of ING (click to enlarge):
The Federal Reserve board will put the finishing touches to a new plan for communicating its strategy to the public at its December meeting, ahead of unveiling the plan early next year, the WSJ reports. To make its stance on interest rates clearer, the Fed could divulge more of its forecasts for growth, employment and inflation each quarter. Fed officials have already sought to guide markets away from expecting a rate increase before “mid-2013″. The new communications regime may also see a formal declaration of the Fed’s informal 2 per cent inflation target, accompanied by a description of its goals with regard to the unemployment rate. Read more
German bond auctions failing, IMF non-announcements driving market sentiment, Spain paying through the nose to fund itself, credit spreads blowing out, Dexia dragging down triple-A France, eurobonds getting vetoed again, bank runs in Latvia, and then flash estimates of November’s Purchasing Managers Indices have to come along and kick us when we’re down. And just before Thanksgiving too.
The Markit Flash Eurozone PMI Composite Output Index, based on around 85% of usual monthly replies, rose from 46.5 in October to 47.2 in November. Although signalling a slight weakening in the rate of contraction, the latest reading signalled a downturn in private sector business activity for the third successive month. Read more
Is QE money printing, or not? That is the question.
Is it hyperinfaltionary, or not? That is another question. Read more
If you were expecting widespread easing of policy rates across the emerging world, think again.
Since the end of August three EM central banks have cut rates — Brazil, Israel and Indonesia – but don’t go expecting much more monetary easing, Citi has cautioned in a recent report. Read more
Central banking and central bankers as we know them are out of touch with the modern world and ill-equipped to deal with the challenges set before them.
That is the view of Morgan Stanley’s Manoj Pradhan who argued that the current ‘DDD regime’, meaning debt, deficits and deleveraging, requires a different monetary policy strategy. Read more
Anything Lord Wolfson can do…
LONDON, Oct 19 (Reuters) – A leading British businessman is offering a 250,000 pound ($390,000) reward for economists who can come up with the best plan for countries to quit the European single currency zone. Read more
After rising 6.2 per cent in August compared to a year earlier, China’s consumer price index rose at the slightly lower rate of 6.1 per cent in September according’s the the country’s National Bureau of Statistics, reports the FT. The producer price index rose 6.5 per cent, considerably below the 7.3 per cent rise that had been anticipated by analysts. However, the most politically sensitive component – food inflation – rose 13.4 per cent, putting it on par with the increase seen in August. China’s central bank has been raising interest rates and reserve requirements in a bid to slow rapid price rises. Read more
Annual inflation in the Eurozone increased to 3 per cent in September, according to a flash estimate by the European Union’s statistics office, Eurostat. Economists had expected a reading of 2.5 per cent, the same as August, reports Bloomberg. The sudden increase is the fastest acceleration in almost three years. The release from Eurostat also showed that unemployment in the 27-nation block held steady at 10 per cent in August, reports Reuters. Read more
The spread between 30-year Treasury inflation-protected securities and Treasuries has fallen below the Fed’s unofficial 2 per cent target, signalling that inflation expectations are at their lowest since summer 2010, the FT reports. The 30-year break-even rate has dropped to 1.85 per cent recently, from 2.73 per cent last month. While the move has accompanied falling markets in classic inflation hedges like gold and oil, investors have argued that the price move reflect poor liquidity in the Tips market. Read more
Please, please, please don’t accuse the Bank of England of getting involved in currency wars.
It hasn’t deliberately deflated the Great British Krona Sterling in the past couple of years. In fact, monetary policy has has nothing, repeat nothing, to do with sterling’s decline. Read more