Information breakfast; Are we now on the other side of the inflationary bubble?


Here’s our roundup of the weekend’s main economic events affecting New Zealand, with news that central banks are keeping inflation pressure bogey as there is mounting evidence that inflationary pressure is s attenuates and in some places quite quickly. (It kind of mirrors the war in Ukraine.)

However, this weekend, China is on vacation (mid-autumn festival), a muted affair with discouraged travel. The authorities have issued warnings on unnecessary trips pandemic cases are rising unabatedin many provinces.

New yuan loans rose more in August than in July, but the July level was very depressed and the August “recovery” was less than expected. It was driven by stronger “business demand”, including forced financing on orders from Beijing. Household demand remained very weak. Their money supply is now increasing (+12.2% per year) at a rate three times faster than that of economic activity – perhaps much more in recent months.

Staying in China, after effusive official statements from start-ups, their trading on the carbon market is at a standstill. The need to be carbon efficient is no longer a priority there, it seems.

The inflationary impulse has almost completely vanished in China. The annualized CPI rate over the last 4 months is only +0.6%, even though they report annual CPI inflation of 2.5% in August and down from 2.7% in July. Most of these gains occurred early in the year. Food prices are now stable. But lamb prices rose again in August even though they have been falling for the past 12 months. Beef prices are not rising much, however.

Producer price inflation has disappeared in China, replaced by deflation now. It’s been a big drop and prices are falling at a rate of over -14% per year now. For the full year to August, they are up +2.3%, well below the annual +9.5% in August 2021. Current rates are at their lowest since 18 months. This type of data gives meaning to the falling yuan exchange rate.

In the United States, and after months of gloom, Americans are finally start to feel better about the economy – but more resigned to inflation. Petrol prices have fallen rapidly, but headline inflation is still relatively high and August figures will be released on Wednesday this week (NZT) and are expected to rise from 8.5% to 8.1%. But the rapid rise in sentiment isn’t due to year-over-year changes, it’s because of month-to-month shifts in household budgets, and the relief is widespread.

WE wholesale inventories rose slightly in July from June, but this only adds to a long series of increases. From one year to the next, they are up by a worrying 25%. That’s more than inflation can explain. Supply chain pressure is also part of the reason. But wholesale sales fell in July from June. So the inventory-to-sales ratio has jumped, and while it hasn’t yet returned to pre-pandemic levels, businesses will notice the pressure now and the risk of a period of destocking is high – which is always a corrosive sign.

This year, US online sales will only increase by +9.4% to reach US$1,000,000,000, the first time the growth rate has slipped into single digits, and given the surge in inflation, an unusually modest increase. Bloomberg is reports as sellers of the giant Amazon platform brace for a weak upcoming holiday season and worry that they will have to cut sharply to move inventory. It will also lower inflation.

The impact of lower order levels is particularly felt in China. During what should be their peak export shipping season, in fact, it looks like an off season period. This is another key reason why containerization shipping costs plummet. And the number of container ships waiting off the Port of Los Angeles-Long Beach has fallen from more than 100 in January, when it was at its highest level, to less than 10 today. It is more of a safe decompression to reduce inflation.

But none of this deters the US Fed from focusing on fighting inflation, regardless of the impact on demand. Another board member called for an outsized hike in September in a speech during the weekend.

Canada released a surprisingly disappointing jobs report for August. The number of full-time jobs dropped unexpectedly. A small gain was expected. The decision was substantial, enough to sharply increase its unemployment rate as well, to 5.4% from 4.9% in July. It was a sharp fall in public sector employment that drove the change, rather than an impact of interest rates on the private sector where employment remained unchanged.

In Sweden there is a ongoing election, with the centre-left expected to outperform a recent push by the anti-immigration ‘Swedish Democrats’ party. The failure to deal with a recent upsurge in gang violence has strengthened the far-right party.

In New Zealand, grocery heavyweight Foodstuffs is reports (via Infometrics) that their suppliers have increased prices by +8.7% over the past year with nearly 7,500 product lines increasing in cost. Fruits and vegetables led the way. Overall, the pace is accelerating, with August cost increases running at a rate of +12% YoY versus July.

The 10-year UST yield starts today at 3.32% and remains unchanged from Saturday. The UST 2-10 yield curve is unchanged at -25 bps. Their 1-5 curve is little modified at -23 bps. And their 30-day-10-year curve has steepened slightly, now at +78 basis points. Australia’s 10-year bond is still at 3.57%. The 10-year Chinese government bond is unchanged at 2.66%. And the New Zealand 10-year government will start today at 3.95%, unchanged but down -6 basis points from last week.

The price of gold will open today at US$1,717 an ounce and up to +US$1 from this time on Saturday.

And oil prices are today starting to fall from US$1.50 to just under US$85/bbl in the US, while the international price of Brent is now just below US$92/bbl .

The Kiwi Dollar will open today just at 61 USc and remain unchanged this weekend. Against the Australian dollar, we are unchanged at AUc 89.2. Against the euro, we are at 60.8 euro cents. All of this means that our TWI-5 starts today at 70.5 and drops slightly by -20 basis points for the week.

Bitcoin price is now at US$21,650 and up 2.3% from this time on Saturday. Volatility over the past 24 hours has been modest at just over +/-1.3%.

The easiest place to keep up to date with the risks of events today is to follow our economic calendar here.”

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