BoC Governor Tiff Macklem said he’s “not going to rule anything out”,. when he was asked whether he could considering hiking more than 50bps at next meeting. He added, “we’re prepared to be as forceful as needed and I’m really going to let those words speak for themselves.”
“If we start to see demand pressures internally moderate and we start to see those international price pressures abating, you should see those quarter-over-quarter inflation rates start to come down,” Macklem said.
BoE Governor Andrew Bailey said yesterday that the UK is “walking a very tight line between tackling inflation and the output effects of the real income shock, and the risk that that could create a recession and pushes too far down in terms of inflation.”
“We are now in a period of unprecedentedly large shocks,” he said, referring to both the pandemic and the war in Ukraine.
Fed Chair Jerome Powell said in an IMF discussion that with inflation running three times the 2% target, “it is appropriate to be moving a little more quickly.” He added that “fifty basis points will be on the table for the May meeting.”
“We have had an expectation that inflation would peak around this time and come down over the course of the rest of the year and then further,” Powell said. “These expectations have been disappointed in the past…We are not going to count on help from supply side healing. We are going to be raising rates.”
BoE MPC member Catherine Mann said in a speech that the key topics for her for the May meeting was on “how much and when the expected consumption drag (from high energy inflation) materialises”. And, “whether we start to see any indication of price forecast revisions in the DMP survey”.
“If they do, this potentially would short-circuit the expectations-formation process underpinning the domestic inflation ratchet, which has been my central concern”, she added.
However, “should the impact on aggregate demand of the energy price shock end-up being more modest than currently foreseen, should wage and price expectations and outcomes remain as strong as they currently are, and should financial markets return to being copacetic on private credit and duration risk, a reassessment of the pace of tightening would be warranted.
“Monetary policy needs to keep inflation expectations anchored; by doing so now, less tightening will be required later, when demand may still be weak”, she added.
US initial jobless claims dropped -2k to 184k in the week ending April 16, above expectation of 177k. Four-week moving average of initial claims rose 4.5k to 177k.
Continuing claims dropped -58k to 1417k in the week ending April 9, lowest since February 21, 1970. Four-week moving average of continuing claims dropped -31k to 1482k, lowest since March 21, 1970.
ECB President Christine Lagarde said in a speech, the impact of the factors driving up inflation currently “should fade over time”. But for the near term, “inflationary risks are tilted to the upside”. Over the medium-term, ” risks to the inflation outlook could arise if wages rise by more than anticipated, longer-term inflation expectations move above target or supply conditions durably worsen”.
But so far, “wage growth has remained muted – despite a strong labour market – and inflation expectations in the euro area stand around our target”.
On monetary policy, Lagarde said it will “depend on the incoming data and our evolving assessment of the outlook”. ECB would maintain “optionality, gradualism and flexibility” in the conduct of monetary policy.
Eurozone CPI was finalized at 7.4% yoy in March, up from February’s 5.9% yoy. The highest contribution to the annual euro area inflation rate came from energy (+4.36%), followed by services (+1.12%), food, alcohol & tobacco (+1.07%) and non-energy industrial goods (+0.90%).
EU CPI was finalized at 7.8% yoy, up from February’s 6.2% yoy. The lowest annual rates were registered in Malta (4.5%), France (5.1%) and Portugal (5.5%). The highest annual rates were recorded in Lithuania (15.6%), Estonia (14.8%) and Czechia (11.9%). Compared with February, annual inflation fell in two Member States and rose in twenty-five.
ECB Vice President Luis de Guindos said in an interview, the consequences of invasion of Ukraine are “quite clear”, as higher inflation and lower growth. That should be reflected in in June outlook.
He sees “no reason why we should not discontinue our APP programme in July”. But the timing for the first rate hike will depend on the economic projections. “Nothing has been decided so far,” he said.
“From today’s perspective, July is possible and September, or later, is also possible. We will look at the data and only then decide,” he added. Then, the rate hike cycle will “depend on the data” and the “evolution of inflation.
ECB Governing Council member Pierre Wunsch said, “without any really bad news coming from that front, hiking by the end of this year to zero or slightly positive territory for me would be a no brainer.”
Also, Wunsch doesn’t rule out ending the asset purchases in June, and raise interest rate in July. “It’s going to of course depend on data,” he said. “If we have another inflation surprise, it’s certainly a scenario that I would consider.”
“There are of course situations where if the shock is very big on the real economy, we would feel more comfortable looking through the inflation development,” he said. But “we’re still in a situation where we’re supportive in terms of monetary policy. Real rates are today very, very negative. So the beginning of the normalization process should be relatively independent of the real economy.”
“We’re still talking about normalization, but I wouldn’t exclude that at some point, if we have second-round effects, wages going up, that monetary policy would have to become restrictive,” he said. “What’s priced in by the markets today to me is on the low side of what might be required to get inflation under control.”
New Zealand CPI rose 1.8% qoq in Q1, below expectation of 2.0% qoq. For the 12-month period, CPI accelerated from 5.9% yoy to 6.9% yoy, below expectation of 7.1% yoy. That’s nonetheless still the highest annual rate since June 1990 quarter.
StatsNZ said: “The main driver for the 6.9 percent annual inflation to the March 2022 quarter was the housing and household utilities group, influenced by rising prices for construction and rentals for housing.”
“Construction firms have been experiencing many supply-chain issues, higher labour costs, and also higher demand, which have pushed up the cost of building a new house,” senior prices manager Aaron Beck said.
Sanjaya Panth, deputy director of the IMF’s Asia and Pacific Department, said Yen’s depreciation is “driven by fundamentals.
“Economic policymaking should continue to look at fundamentals. We don’t see any reason to change economic policy because what’s happening right now reflects fundamentals.”
“As you know, a weak yen hasn’t been bad for Japan,” Panth said. “At the same time, it does affect households. It’s a little bit of a mixed bag.”
“Japan is in a very different situation compared with other advanced countries who have begun tightening monetary policy,” he said. “We do not see any need to change the accommodative monetary policy stance.”
BoJ announced yesterday another round of bond purchases to defend the 10-year JGB yield cap at 0.25%. It will carry out unlimited purchases through auctions on April 21, 22, 25, and 26, with 0.25% fixed-rate applied.
“Given recent yield movements on longer-ended notes, we have announced a consecutive unlimited fixed-rate purchase of bonds to achieve our policy to guide the 10-year yield around 0%,” the BoJ said in a statement.
Under the yield curve control framework, BoJ intends to keep 10-year JGB yield at 0%, with allowance to move up and down 0.25%.
San Francisco Fed President Mary Daly said yesterday that ” an expeditious march to neutral by the end of the year as a prudent path.” And it’s the “top priority” to move “purposefully to a more neutral stance that does not stimulate the economy”
“The case for a 50 basis-point adjustment is now complete,” she said after the speech. “The economy is resilient; it can handle these adjustments.” And, she’s “busy thinking about are three things: inflation, inflation, inflation.”
Nevertheless she also emphasized, ,”if we ease on the brakes by methodically removing accommodation and regularly assessing how much more is needed, we have a good chance of transitioning smoothly and gliding the economy to its long-run sustainable path,” she said.
As for the economy, she said, recession is one word, but it describes a whole range of outcomes. It can be a couple of quarters of a tiny bit below zero. That’s a very different beast than something like the financial crisis or the Volcker disinflation period.”
“That’s not something that I’m forecasting or something I think would derail the long-run expansion,” she added.
Canada CPI rose 1.4% mom in March, above expectation of 0.9% mom. That’s the largest monthly increase since January 1991. For the 12-month period, CPI accelerated from 5.7% yoy to 6.7% yoy, well above expectation of 6.1% yoy. That’s also the largest annual rise since January 1991.
CPI common rose from 2.7% yoy to 2.8% yoy, above expectation of 2.7% yoy. CPI median rose from 3.5% yoy to 3.8% yoy, above expectation of 3.5% yoy. CPI trimmed rose from 4.4% yoy to 4.7% yoy, above expectation of 4.3% yoy.
Statistics Canada said: “Inflationary pressure remained widespread in March, as prices rose across all eight major components. Prices increased against the backdrop of sustained price pressure in Canadian housing markets, substantial supply constraints and geopolitical conflict, which has affected energy, commodity, and agriculture markets.”
ECB Governing Council member Martins Kazaks said in a Bloomberg interview, that it’s possible to hike interest rate in July. Meanwhile, QE could end at the end of June but the policy members will have to discuss it with new economic forecasts on hand.
“A rate increase in July is possible, and I have no reason to disagree with what markets are pricing for the second half of the year,” he said. “We are on a solid path of policy normalization” where “we step-by-step gradually get to zero and then above”.
“Gradual doesn’t mean slow,” added Kazaks. “It doesn’t mean being consciously behind the curve. No, it just means checking if taken policy measures are appropriate.”
“We haven’t seen any major elements of stress in financial markets, which makes me think that ending QE early in the third quarter is possible and appropriate,” Kazaks said. “Whether it could already happen at the end of June, we’ll have to discuss when we get new forecasts.”
Eurozone goods exports rose 17.0% yoy to EUR 215.8B in February. Imports rose 38.8% yoy to EUR 223.4B. Trade deficit came in at EUR -7.6B. Intra-Eurozone trade rose 25.6% yoy to EUR 202.5B.
In seasonally adjusted term, Eurozone exports rose 0.8% mom to EUR 223.6B. Imports rose 1.5% mom to EUR 233.1B. trade deficit widened from EUR -7.7B to EUR -9.4B, larger than expectation of EUR -6.5B. Intra-Eurozone trade rose from EUR 202.7B to EUR 205.8B.
Eurozone industrial production rose 0.7% mom in February, below expectation of 0.8% mom. Production of durable consumer goods rose by 2.7%, non-durable consumer goods by 1.9% and intermediate goods by 0.9%, while production of capital goods fell by -0.1% and energy by -1.1%.
EU industrial production rose 0.6% mom. Among Member States for which data are available, the highest monthly increases were registered in Italy (+4.0%), Croatia (+2.7%) and Ireland (+2.4%). The largest decreases were observed in Slovenia (-8.3%), Lithuania (-3.8%) and Malta (-2.7%).
Japan exports rose 14.7% yoy to JPY 8461B in March. That’s the 13th straight month of rise, reflecting robust demand for semiconductor manufacturing devices in Taiwan and steel product shipments to Vietnam. Imports rose 31.2% yoy to JPY 8873B. Petroleum imports jumped 69.7% yoy, the 12th straight month of rise. Trade deficit came in as JPY -412B, the 8th straight month of deficit, longest streak since 2015.
In seasonally adjusted term, exports rose 1.7% mom to JPY 7570B. Imports dropped -0.5% mom to JPY 8470B. Trade deficit came in at JPY -900B.
Australia Westpac-MI leading index rose from 1.02% to 1.71% in March. That’s the fastest growth rate since May 2021. The data are consistent with Westpac’s expectation of around 5.5% GDP growth in 2022, with more than 70% of that being concentrated in Q2 and Q3.
Westpac expects RBA to be on hold at May 3 meeting, but be prepared to move interest rate at June 7 meeting. It expects a hike of 15bps in June, with 25bps hikes at most subsequent meetings to reach 1.25% at the end of 2022. In 2023, it expects three further 25bps hikes with interest rate peaking at 2% in June.
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Japan CPI core accelerated to 0.8% yoy in Mar
Japan all item CPI rose fro 0.9% to 1.2% in March, below expectation of 1.3% yoy. CPI core (ex-food) rose form 0.6% yoy to 0.8% yoy, matched expectations. CPI core-core (ex-food and energy) improved from -1.0% yoy to -0.7% yoy, better than expectation of -1.1% yoy.
The core CPI rate was the fastest in over 2 years. Energy prices jumped 20.8% yoy, largest gain since 1981, with kerosene up 30.6% and gasoline up 19.4%.