US CPI hits 7%. US budget improves. China's CPI lower. China's banks slow their lending. India's CPI rises. EU industrial production recovers.
Kia ora,
Welcome to Thursday’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 inflation pressures are confirmed today, setting the stage for more rate hikes.
American consumer price inflation reached 7% in December, a 40 year high but in line with what was expected. Food prices rose +6.3% and energy prices +29% in the year. The rest were up 5.5% or which clothing was up +5.8% and rents up +4.1%. Medical costs which are very high to start with were only up +2.5%. There is plenty of evidence here that cost increases are broad for households and probably not going away any time soon. But because there were no surprises in this data, markets are tending to consider it 'priced in'.
But for all that, it more or less confirms the US Federal Reserve will start raising its policy rate 'soon', probably in March. It can't let inflation get embedded at these levels.
US monthly budget statement will be released at 8am NZT and we will update this item then. It is expected to show a sharp improvement in the monthly budget deficit, down to just -$25 bln in the month - which is almost in balance for them. Much more responsible management of their budget is one factor, along with better tax flows from an improving economy.
Today's well supported US Treasury 10yr bond tender has brought sharply higher yields, up to 1.65% from 1.45% at the prior equivalent event a month ago.
China's consumer inflation rate fell to 1.5% in December, lower than for November, but still the second highest rate since mid 2020. Food prices fell, but that did not include prices for beef, lamb or milk.
China's producer price inflation eased to 10.3% in the year to December from 12.9% in November and below market forecasts of 11.1%.
China's vehicle sales slipped in December from November, but rose for the whole year, consolidating it as the world's largest vehicle market. They sold just under 2.8 mln units in December, the eighth consecutive month of decline, as a global shortage of semiconductors continued to hurt the sector.
China new bank lending data for December confirms their current economic stall, with the expansion less than expected and less than in November. And that is despite their money supply being boosted more than expected.
India also release its December CPI data which was up +5.6%, more than the 4.9% in November but not as bad as the 5.8% anticipated. But it was the highest rate since July. India's central bank has a target to keep inflation in a wide 2%-6% range, so they aren't panicking.
However, India's industrial production growth slipped badly in November, rising only +1.4% when double that was expected and coming off a +4% rise the prior month. This probably got policymakers' attention.
EU industrial production recovered in November from an unexpectedly weak October, but that still left it -1.5% lower than year-ago levels.
The UST 10yr yield opens today at 1.72% and with another -4 bps retreat.
The price of gold started today at US$1825/oz and another +US$10 rise since this time yesterday.
And oil prices start today marginally softer at just under US$80.50/bbl in the US, while the international Brent price is now just over US$84.50/bbl.
The Kiwi dollar opens today markedly firmer at 68.4 USc and a +¾c rise. Against the Australian dollar we are unchanged at 94.1 AUc. Against the euro we are firm at 59.9 euro cents. That means our TWI-5 starts the today up at 72.6.
The bitcoin price has firmed further since this time yesterday, up another +2.0% to US$43,603. The softer US dollar helped. Volatility over the past 24 hours has been moderate at +/- 2.0%.
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.