China toys with deflation again; US sentiment improves as cost pressures ease; US inventories rise; Fed signals more outsized hikes; no inflation relief in NZ
Kia ora,
Welcome to Monday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.
I'm David Chaston and this is the International edition from Interest.co.nz.
Today we lead with news central banks are keeping the pressure on the inflation bogey just as there is mounting evidence inflationary pressure are easing and in some places quite quickly.
However, this weekend China is on holiday (Mid-Autumn Festival), a muted affair with travel discouraged. Authorities have issued warnings about unnecessary travel as pandemic cases grow relentlessly, across many provinces.
New yuan loans expanded more in August than July, but then the July level was very depressed, and the August 'recovery' was less than expected. It was driven by stronger 'corporate demand' including forced financing on Beijing's orders. Household demand remained very weak. Their money supply is now growing at three times the rate of economic activity - maybe much more in recent months.
Staying in China, after effusive official start-up claims, their carbon market trading is grinding to a halt. The need to be carbon-efficient is no longer a priority there it seems.
The inflation impetus has leaked away almost completely in China. The annualised CPI rate over the past 4 months is just +0.6%, even though they are reporting annual CPI inflation of 2.5% to August and down from 2.7% to July. Most of those gains happened in the early part of the year. Food prices are stable now. But lamb prices rose again in August even though they fell in the last 12 months. Beef prices are hardly rising however.
Producer price inflation has vanished in China, replaced by deflation now. It’s been a sharp retreat and prices are falling at a rate exceeding -14% pa now. For the full year to August they are up +2.3%, and that is far below the annual +9.5% in August 2021. Current rates are 18 month lows. This sort of data makes sense of the sinking yuan exchange rate.
In the US, and after months of gloom, Americans are finally starting to feel better about the economy- but more resigned to inflation. Petrol prices have fallen quickly, but overall inflation is still relatively high and the August numbers will be out on Wednesday this week (NZT), and are expected to slip from 8.5% to 8.1%. But the fast rise in sentiment isn't because of year-on-year changes, it is because of month-on-month changes to household budgets, and the relief is widespread.
US wholesale inventories rose slightly in July from June, but that just adds to a long string of increases. Year on year they are up a disturbing +25%. That is more than inflation can account for. Supply-chain pressure is also part of the reason. But wholesale sales slipped in July from June. So the inventory-to-sales ratio jumped, and although it is not yet back to pre-pandemic levels, companies will notice the pressure now and the risk of a de-stocking period is high - which is always a corrosive sign.
This year American online sales will rise just +9.4% to US$1 tln, the first time the growth rate has slipped into the single digits, and given inflation's surge, an unusually modest rise. Bloomberg is reporting that sellers on the giant Amazon platform are bracing for a weak upcoming holiday season and the worry that they will need to discount heavily to shift inventories. That will depress inflation too.
The impact of lower order levels is being noticed particularly hard in China. In what should be their peak-season of export shipments, in fact it now looks like an off-season period. It is another key reason why containerised shipping costs are diving. And the number of container vessels waiting offshore of the Port of Los Angeles-Long Beach has declined from more than 100 in January when it was at its highest, to less than 10 now. This is more pressure-relief sure to reduce inflation.
But none of this is deterring the US Fed from its focus on battling inflation, no matter what the impact on demand. Another board member called for an out-sized hike in September in a speech over the weekend.
Canada delivered a surprisingly disappointing jobs report for August. The number of full-time jobs fell sharply in a way that wasn't expected. A small gain was expected. The move was substantial, enough to raise its jobless rate sharply too, up to 5.4% from 4.9% in July. It was a sharp fall in public sector jobs that drove the change, rather than an impact of interest rates on the private sector where employment was unchanged.
In Sweden there is an election underway, with the center-left expected to best a recent surge by the anti-immigration 'Sweden Democrats' party. A failure to deal with a recent gang violence upsurge has bolstered the far-right party.
In New Zealand, grocery heavyweight Foodstuffs is reporting that their suppliers raised prices to them +8.7% over the past year with almost 7,500 product lines rising in cost. Fruit and vegetables led the way. Overall the pace is quickening, with the August cost rises running at a +12% pa rate over July.
The UST 10yr yield starts today at 3.32% and unchanged from Saturday.
The price of gold will open today at US$1717/oz and up +US$1 from this time Saturday.
And oil prices start today -US$1.50 softer at just under US$85/bbl in the US while the international Brent price is now just under US$92/bbl.
The Kiwi dollar will open today just on 61 USc and unchanged over the weekend. Against the Australian dollar we are unchanged at 89.2 AUc. Against the euro we are at at 60.8 euro cents. That all means our TWI-5 starts today at 70.5 and down a minor -20 bps for the week.
The bitcoin price is now at US$21,650 and a 2.3% rise from this time Saturday. Volatility over the past 24 hours has been modest at just over +/- 1.3%.
You can find links to the articles mentioned today in our show notes.
And get more news affecting the economy in New Zealand from interest.co.nz.
Kia ora. I'm David Chaston and we’ll do this again tomorrow.