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This week’s news that interest rates are probably at their peak (see here ) and the news that public borrowing in the current fiscal year is £11bn below the Office for Budget Responsibility’s forecast has raised the pressure on the Chancellor to deliver …
22nd September 2023
The new projections published by the Fed this week signalled that officials are fully onboard with the idea of interest rates staying ‘higher for longer’, but that is based on forecasts for real economic growth and inflation which we believe are …
Higher inflation lowering deficit and debt/GDP Even though inflation excluding fresh food and energy remained stubbornly high at 4.3% in August, the Bank of Japan didn’t drop any further hints that it might tighten policy anytime soon at its meeting …
Second-round effects set to be small The minutes of the RBA’s September meeting revealed that the Bank kept discussing another 25bp rate hike. One argument in favour was that the recent rise in petrol prices could make the process of returning to target …
A recent poll suggests that Canadians are growing sceptical of the government's high immigration targets. Whether policy shifts or not, it is inevitable that net immigration will eventually slow from record rates, but there is no sign of that yet. Opinion …
15th September 2023
Core inflation still on firm downward trend Although core CPI increased by 0.3% m/m in August (or 0.28% to be precise), up slightly on the 0.2% m/m gains (both 0.16%) in the preceding two months, the rise last month was still smaller than the average gain …
Note: We’ll be discussing September’s Fed, ECB and Bank of England policy decisions in a Drop-In at 3pm BST on Thursday 21st September. (Register here .) We’ve been surprised by the resilience of the labour market over the past year. More recently, …
Wage growth will remain contained Data published by the Fair Work Commission on Monday showed that average annualised wage increases under new enterprise bargaining agreements (EBAs) soared to 4.4% in the two weeks leading up to August 11 th . That meant …
Ueda signals tighter policy Bank of Japan Governor Ueda’s comments over the weekend that the Bank may have enough information by the end of this year to call time on negative interest rates sent 10-year JGB yields above 0.7% for the first time since 2014. …
In his speech this week, Governor Tiff Macklem sounded much more confident that the Bank will be able to meet its 2% inflation target. The latest labour market and local housing data suggest that may still be possible without a recession. Policy rate has …
8th September 2023
Higher energy prices not a game changer for the Fed Crude oil prices up, wholesale gasoline down? The further rise this week in the WTI crude oil price to a 10-month high of $87 a barrel, from a recent low of less than $70 in late June, has raised …
It’s no surprise that the reverberations from the revisions to GDP announced by the Office for National Statistics (ONS) last week continued into this week because the upward revisions were so big. As we noted at the time, we estimate that the level of …
Consumption set to slow further The 0.4% q/q rise in Q2 GDP was a touch stronger than the RBA’s August estimate of 0.2%, but the more important question is what the figures mean for the outlook for the economy over the coming quarters. On past form, the …
MoF signaling some concern over weaker yen As the yen weakened to nearly 148 against the dollar this week, the government has signalled its readiness to intervene in foreign exchange markets to stop its slide. Masato Kanda from the Ministry of Finance …
Bank to pause amid rising recession risks The surprise second-quarter contraction in GDP was partly due to the wildfires but, even without that damage, growth would have been very weak. With the August CFIB Business Barometer showing further concerning …
1st September 2023
This week brought more data showing that real economic activity is holding up surprisingly well given surging interest rates but, in part due to the easing in labour market conditions, price pressures are nevertheless fading. US consumer remains the …
This week the Bank of England’s Chief Economist, Huw Pill, indicated that while the Bank still had to “see the job through” and remain vigilant with “stubbornly high inflation”, he didn’t think interest rates need to rise much further from 5.25% now. But …
Australia’s energy-sector woes On Monday, union representatives at Chevron’s Gorgon and Wheatstone LNG plants announced their intention to take industrial action starting September 7 th . A union document suggests that members will engage in rolling work …
31st August 2023
Government extending gasoline subsidies Japan’s government this week confirmed that the gasoline subsidies that were scheduled to expire in September will be extended until year-end, though gasoline prices will now be capped at 180 yen/litre instead of …
After a relatively cautious speech at Jackson Hole from Fed Chair Jerome Powell and data this week which cast doubt on the idea of an economic resurgence, we still aren’t convinced that the rise in market interest rate expectations for the next few years …
25th August 2023
The worst Canadian wildfires on record appear to be behind much of the recent weakness in GDP and, with more areas now under evacuation orders, the data are likely to remain weak in the coming months. Broader negative impact than 2016 wildfires Worst “on …
This week’s bigger fall in UK rate expectations, bond yields and the exchange rate compared to elsewhere is largely due to the markets deciding that a weaker economy will trim inflation, meaning the Bank of England has less work to do. Market pricing is …
Momentum behind price rises starting to slow The economic data released this week suggest that the case for policy rate hikes in response to above-target inflation is still not compelling. For a start, the Tokyo CPI showed that inflation excluding fresh …
New Zealand activity in free fall Data published by StatsNZ on Wednesday showed that retail sales volumes fell by 1% q/q last quarter, a much weaker result than the 0.4% contraction anticipated by the analyst consensus. The weakness in retail sales was …
While the renewed rise in headline inflation in July seems concerning, a closer look shows disinflationary pressures are still building in key areas. Together with easing demand, that should give the Bank of Canada enough reason to leave rates on hold in …
18th August 2023
The Bank of England has more work to do The Fed’s work may be done, but as this week’s UK inflation and labour market releases made clear, this doesn’t mean the Bank of England can relax. First came figures released on Tuesday showing that the 3myy rate …
The continued surge in long-term Treasury yields to their highest level since before the financial crisis, as expectations of an economic re-acceleration have mounted, sets a fraught backdrop ahead of Fed Chair Jerome Powell’s speech at Jackson Hole next …
Economy starting to run hot Given that our GDP tracker pointed to a much smaller rise, it’s possible that the blistering 1.5% q/q rise in Q2 GDP will be revised down. But that strength is consistent with the composite PMI, which hit a decade-high in May. …
New Zealand’s recession to deepen On Wednesday, the RBNZ left its official cash rate unchanged at 5.50%. Surprisingly, however, the Bank lifted its OCR track higher amid concerns about upside risks to the inflation outlook. In fact, the Bank predicts it …
Inflation and activity data at odds Core price pressures collapsing It might seem a little premature to be celebrating when annual core CPI inflation was still as high as 4.7% in July, down only trivially from 4.8%, but don’t be fooled by the strong …
11th August 2023
Although export volumes fell for the second month running in June, the strength of imports suggests that domestic demand is holding up and the Bank of Canada will be pleased to see that import prices continue to fall. Export volumes weak, but imports …
Where the US leads, the UK often follows. So the evidence of broad-based, rapid disinflation in the US offers some hope for the UK. Indeed, at 7.9%, the UK is still lumbered with a CPI inflation more than twice the US rate (3.2%). At least July’s UK CPI …
Wage growth & external demand holding up Data released this week showed that overall wage growth remained above 2% for the second consecutive month as a slowdown in regular earnings growth was offset by a strong contribution from bonus payments as firms …
Households continue tightening their belts Earlier this week, we got further confirmation that household spending in Australia is now in freefall. The ABS’ monthly indicator showed that the slowdown in household spending deepened in June. As a …
More reasons for the Bank to remain on hold The further rise in the unemployment rate in July and signs that the housing market is cooling again are both reasons to doubt that the Bank of Canada will raise interest rates further. Employment weakened in …
4th August 2023
Inflationary pressure dissipating ULC growth slowdown adds to disinflation pressure The news that average hourly earnings growth increased by 0.4% m/m in July, and 4.4% over the past 12 months, might seem like a problem for the Fed. With productivity …
Peak does not mean pivot Whether you took this week’s 25 basis point (bps) rise in interest rates, from 5.00% to 5.25%, and the Bank of England’s accompanying communications as hawkish or dovish largely depends on your prior expectations. We thought it …
On Tuesday, the Reserve Bank of Australia left its cash rate unchanged at 4.10%, upending the consensus forecast for a 25bp rate hike. The Bank’s detailed Monetary Policy Statement , published earlier today, showed that the Board did discuss the option of …
10-year yield continues to rise The Bank of Japan’s defence of Yield Curve Control (YCC) has devolved this week into a rearguard action. Since last Friday’s policy tweak to allow the 10-year Japanese government bond (JGB) yield to rise above 0.5%, the …
The Bank of Canada’s Summary of Deliberations highlighted the Bank’s concern that inflation could become stuck above the 2% target. Although headline inflation faces a bumpy downward path over the coming months, we think a faster easing in core inflation …
28th July 2023
This week’s FOMC meeting brought hints that Fed officials are no longer wedded to previous plans for further policy tightening. Even if activity growth continues to hold up a bit better than expected, we think a run of weaker inflation readings will …
GDP data released this week suggest that the euro-zone economy held up better than we expected in Q2. Output rose in France and Spain and stagnated in Germany . Together, the national data point to euro-zone GDP rising by 0.4% in Q2 rather than falling …
One consequence of higher interest rates is an increase in the losses that the Bank of England will make via the bonds it bought during its quantitative easing (QE) programme. This week, the Bank published an estimate that it could make a huge £150bn …
Real household incomes falling at rapid pace Data released last week underline that Japanese households are struggling to cope with rising living costs. While labour income rose at a robust pace, a slump in government transfer payments resulted in a 1.6% …
The big news out of Australia this week was that both headline and trimmed-mean inflation in Q2 were lower than most had anticipated. However, we still think it’s too soon for the RBA to declare victory in the war on inflation. After all, services …
The US dollar has rebounded over the past two days and looks set to unwind much of last week’s fall. (See Chart 1.) With US data somewhat mixed, much of this rebound in the greenback seems to have been driven by a reassessment of the outlook for other …
21st July 2023
Headline inflation fell to 2.8% in June and, excluding mortgage interest costs, was in line with the 2.0% target. While the Bank’s preferred core measures are still higher, the weakness of retail sales in May and June suggests demand is easing and is …
The Fed is almost certain to hike its policy rate by 25bp to between 5.25% and 5.50% at next week’s FOMC meeting, but we increasingly believe that will prove to be the peak. Despite the ‘higher for longer’ rhetoric from officials, a more marked decline …
Despite the fall in CPI inflation from 8.7% in May to 7.9% in June (see here ), the UK is still lumbered with an inflation rate that is 1.4 percentage points (ppts) higher than in the euro-zone. And at 4.8ppt, the gap between UK and US CPI inflation …
New Zealand inflation looks sticky CPI data published on Wednesday revealed that New Zealand’s consumer prices rose by 1.1% q/q in Q2, only slightly below the 1.2% quarterly rise in Q1. Nonetheless, favourable base effects meant that annual inflation fell …
