Inflation continues to worry markets (as we said in Friday’s weekly Air) with a spate of reports on Friday night adding to concerns, as well as a misreading of the latest US consumer price inflation.
As well, China’s reporting of a jump in inflation to an annual rate of 5.4% in March, thanks to a surge in food prices, plus higher producer prices, along with the US consumer data, sent markets up and down.
India reported a strong rise in inflation as well and European consumer prices for March were up 2.7%, not the 2.6% reported in the early report at the start of the month.
Mexico’s central bank joined its counterparts in Canada, South Korea and Indonesia in not moving rates.
Gold and silver rose, but oil and copper, two key industrial commodities didn’t and registered falls for the week, which tells us something about the wariness of some investors at the moment.
The coming week brings central bank meetings in a number of economies, notably Sweden, Hungary, Brazil, Turkey, Israel and Thailand.
Brazil, Turkey and Thailand are seeing rising levels of inflation, thanks to higher fuel and food prices, but the central banks (like South Korea’s) have tried to avoid pushing rates higher because that will bring in a flood of speculative money.
In the US it was the ninth straight month of rising inflation, up 0.5% on a headline basis, which got investors charging for gold and silver.
But a 0.1% rise in US core inflation (half the expected rate and down the 0.2% rate in January and February) and data showing a moderation in long-term inflation expectations, were ignored by investors.
That left core prices 1.2% higher for the year to March, well below the Federal Reserve’s 2% target and no reason for the central bank to change its stance on rate rises.
Headline US consumer prices rose 2.7% in the year to March, which means they are on par with rates in the eurozone (and Australia).
US Treasury bond yields fell 8 basis points to 3.41%, which is not a sign the so-called bond market vigilantes are worried about higher inflation (which would see rates rising).
That vindicates the US Federal Reserve which thinks the recent energy price spike is having a temporary effect on headline inflation, but not at a deeper level in the economy.
The Fed believes the still sluggish US economy, weighed down by high unemployment and weak demand, is helping hold down core inflation.
That sluggishness can be seen from Friday’s Federal Reserve figures for US industrial production which showed a solid 0.8% rise in March, with broad-based gains across sectors.
It was the fifth straight gain in factory output, as manufacturing continues to lead the economy.
In the first quarter, industrial output rose at a 6% annual rate, faster than the 3.2% rate in the final three months of 2010.
Industrial output is up 5.9% compared with a year ago.
Capacity utilization – the key measure of slack demand in the economy – jumped to 77.4% in March from 76.9% in February.
This is the highest level since July 2008 but still below the average rate of 80.4% from 1972 through 2010.
So far the spare capacity and high jobless are keeping wages and other embedded costs down, although the higher fuel and food costs are grabbing the headlines.
The Fed meets the week after next on April 26.
Reuters reported: "This should help to ease inflation concerns at the Fed. With food and energy cutting into consumer spending power, it’s difficult for sellers of other goods and services to pass price increases through to the consumer," said Nigel Gault, chief U.S. economist at IHS Global Insight.
Australian inflation data stats being issued on Wednesday and Thursday with import and export price indexes first, then producer prices.
The CPI is out next Wednesday, April 27.
