So Glenn Stevens likes the nags after all.
Well, sort of.
From the ECB’s September update on monetary developments in the euro-area released on Thursday:
That’s euroland M3 – the broad money supply measure — coming in below expectations and dropping again to 2.7. Really brings to mind Draghi’s warning to the Bundestag that “In our assessment, the greater risk to price stability is currently falling prices in some euro area countries”, doesn’t it? Read more
Mervyn King gave a “personal assessment” of the inflation targeting regime over the past twenty years on Tuesday night. And seemed to suggest that it may be best to allow UK inflation to over-shoot the 2 per cent target given the current economic environment in order to minimise volatility. Read more
Capital Economics put out a cracker of a note on UK output this week. It’s taken us a while to get through it but we wanted to do it justice. Here’s the key extract:
‘Supply pessimists’ point to high inflation and growing employment as evidence of a small output gap. But inflation was pushed up by temporary factors and has eased recently, while domestically generated inflation has remained low.
We introduced our Rubiks QE analogy on Tuesday. This post is a continuation, in which we apply the analogy to the crisis so far.
Before we go on we should point out that the Rubik’s is a simplification, as are the concepts of “tomorrow money” and “today money”. There are and will always be areas that call for further explanation, but which we haven’t covered in this post. If they’ve been left out, it’s mostly due to post-length constraints. It’s not because we are wilfully ignoring them. Read more
This is reassuring (or not – we can’t decide). The Global fixed income strategy team at HSBC *believe* they’ve come up with a non-consensus view on the effects of QEternity:
Our non-consensus view is that QE3 will drive US Treasury yields to new lows Read more
“Mad. Mad. Mad. Bernanke’s gone totally MAD, I tell you!”
“What’s he thinking with QEternity? It’s so inflationary. AGHH!” Read more
“The Fed will destroy the world”
As top lines go it’s pretty decent… and when you follow up with a pic of a strategist in a bath you leave us no choice but to post (we tried to resist, we really did): Read more
For all the talk of heightened inflation expectations on the back of QE3, Morgan Stanley analysts remain unconvinced.
The truth, according to them, is that central bank action is having less than its desired effect. In fact, inflation expectations have remained well behaved if not subdued. Read more
The Office for National Statistics is out to get the Retail Price Index… or at least the part of responsible for the ‘formula effect gap’. But before we get to the sexy stuff — involving gilts and clauses and all — a quick statistical primer is called for.
The RPI began life as a compensation index, developed as an aid to protect ordinary British workers from price increases associated with WWI. It didn’t become the main domestic measure of inflation until much later. 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.
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.
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.
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.