Tag Archives: CPI

China Inflation Fastest Since Mid-2014

Bloomberg, Mar 10, 2016

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* Food prices surge 7.3 percent in month of family feasts
* Non-food inflation remains tepid, while PPI deflation lingers

China’s consumer price rose the most since mid-2014 in February as food costs jumped amid the week-long Lunar New Year holidays, where millions binge on roast pork, duck, seafood and veggies.

The consumer-price index rose 2.3 percent in February from a year earlier, up from 1.8 percent in January, as food prices surged 7.3 percent. Raising question marks over the durability of that pickup, non-food prices moderated from a month earlier to a 1 percent increase and services inflation slowed.

 

The producer-price index fell 4.9 percent, narrowing from a 5.3 percent decrease in January, extending declines to a record 48 months.

Stabilization in prices, if sustained in coming months, will ease policy makers’ concerns over deflation, which discourages new investment and erodes profit margins. Still, CPI remains well below the government’s target for 3 percent this year, meaning there’s no constraint yet on policy makers’ scope for easier monetary settings.

“Food prices surged before the Spring Festival and a cold wave pushed them higher,” said Zhao Yang, Chief China economist at Nomura Holdings Inc. in Hong Kong. “The jump is temporary. Inflation is unlikely to become a concern that would limit monetary policy.”

Zhao said he sees inflation moderating again in coming months, while there is some risk that rents will rise in the nation’s biggest cities as property prices recover.

Mining and raw materials prices remained the biggest drag on factory prices.

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Michael Pento: Fed Headed into Inflation Overdrive

By Michael Pento, Oct 27, 2015

Seven years of extraordinary fiscal and monetary stimuli are proving ineffective towards achieving the growth and inflation targets laid out by the Federal Reserve. The Consumer Price Index (CPI), the Producer Price Index (PPI) and Gross Domestic Product (GDP) have all failed to grow over 2%. This is because asset prices, at these unjustified and unsustainable levels, need massive and ever increasing amounts of QE (new money creation) to stave off the gravitational forces of deflation. Fittingly, it isn’t much of a mystery that the major U.S. averages have gone nowhere since QE officially ended in October of 2014.
According to the highly accurate Atlanta Fed model, GDP for Q3 will be reported at an annual growth rate of just 0.9%. And things don’t appear to be getting any better for those who erroneously believe growth comes from inflation: September core retail sales fell 0.1%, PPI month over month (M/M) was down 0.5% and year over year (Y/Y) was down 1.1%. CPI was down 0.2% M/M and the Y/Y headline level was unchanged.
While the deflation effect from plummeting oil prices wears off by years-end, there is no reason to believe the same deflationary forces that sent oil and other commodities down to the Great Recession lows won’t start to spill over to the other components, such as housing and apparel, inside the inflation basket. This would especially be true if the Fed continued threatening to raise interest rates and driving the U.S. dollar higher.
Central banks and governments can always produce any monetary environment they desire. It is a fallacy to believe that deflation is harder to fight than inflation. Deflation is currently viewed as harder to fight because the policies needed to create monetary inflation have not yet been fully embraced-although this is changing rapidly.
The Fed just can’t seem to grasp why its newly minted $3.5 trillion since 2008 hasn’t filtered through the economy. But this is simply because debt-disabled consumers were never allowed to deleverage and markets were never allowed to fully clear.
But the Fed isn’t one to let the truth get in the way of its Keynesian story. And why should it? Financial crisis is the mother’s milk of increased central bank power. For example, before the last financial crisis the Fed was unable to buy mortgaged back securities; rules were then changed to allow it to purchase unlimited quantities of distressed mortgage debt. The Fed is perversely empowered to continue making greater mistakes, thus yielding them greater authority over financial institutions and markets.
Since 2008 the rules and regulations fettering Central Banks have become more malleable depending on the level economic distress. Congress has mandated that the Fed can not directly participate in Treasury auctions. But there is no reason to believe in the near future that this law won’t be changed to better accommodate fiscal spending.
Strategies such as: pushing interest rates into negative territory, outlawing cash, and sending electronic credits directly into private bank accounts may appear more palatable in the midst of market distress. The point is that Central Banks and governments can produce either monetary condition of inflation or deflation if the necessary powers have been allocated.
In the Fed’s most recent dot plot (a chart displaying voting member’s expectations of future rates) the Minneapolis Fed’s Kocherlakota was mocked as the outlier for placing his interest rate dot below zero. However, persistent bad economic news has quickly driven the premise of negative rates into the mainstream. Ben Bernanke told Bloomberg Radio that despite having the “courage to act” with counterfeiting trillions of dollars, he thought other unconventional issues (such as negative interest rates) would have adverse effects on money market funds. However, anemic growth in the U.S., Europe and China over the past few years has now changed his mind on the subject.
Supporting this notion, the president of the New York Fed, William Dudley recently told CNBC, “Some of the experiences [in Europe] suggest maybe can we use negative interest rates and the costs aren’t as great as you anticipate.” Indeed, over in Euroland, ECB President Draghi hinted recently that the current 1.1 trillion euro ($1.2 trillion) level of QE would soon be increased, its duration would be extended and deposit rates may be headed further into negative territory.
Statements such as these have me convinced that negative interest rates in the U.S. are likely to be the next desperate move by our Federal Reserve to create growth off the back of inflation. After all, the Fed is overwhelmingly concerned with the increase in the value of the dollar. Keeping pace with other central banks in the currency debasement derby is of paramount importance. Outlawing physical currency and granting Ms. Yellen the ability to directly monetize Treasury debt and assets held by the public outside of the banking system could also be on the menu if negative rates don’t achieve her inflation mandates.
Instead of repenting from the fiscal and monetary excesses that led to the Great Recession the conclusions reached by government are: debt and deficits are too low, asset prices aren’t rising fast enough, Central Banks didn’t force interest rates down low enough or long enough, banks aren’t lending enough, consumers are saving too much and their purchasing power and standard of living isn’t falling fast enough.
The quest of governments to produce perpetually rising asset prices is creating inexorably rising public and private debt levels. The inability to generate inflation and growth targets from the “conventional” channels of interest rate manipulation and the piling up of excess reserves are leading central banks to come up with more desperate measures.
We can see more clearly where Keynesian central bankers are headed by listening to NY Times columnist Paul Krugman’s suggestions for Japan to escape its third recession since 2012. He recently avowed that Japan needs much more aggressive fiscal and monetary stimulus to escape its “liquidity trap” and “too-low” rate of inflation. However, his spurious argument overlooks that the Bank of Japan is already printing 80 trillion yen each year, its Federal Debt is spiraling north of 250% of GDP, and the annual deficits are currently 8% of GDP.
Here it is in his own words: “What Japan needs (and the rest of us may well be following the same path) is really aggressive policy, using fiscal and monetary policy to boost inflation, and setting the target high enough that it’s sustainable. How high should Japan set its inflation target…it’s really, really hard to believe that 2 percent inflation would be high enough.”
You see! According to this revered Keynesian economic expert if what you’ve already done in a big way hasn’t worked all you need to do is much more of the same.
Unfortunately, Krugman and his merry band of arrogant Keynesian haters of free markets represent the conscious of global governments and central bankers. What they indeed are creating is a perfect recipe for massive money supply growth and economic chaos. Therefore, if these strategies are followed, it will inevitably lead to a worldwide inflationary depression. And this is why having a gold allocation in your portfolio is becoming increasingly more necessary.

 

This article is written by Michael Pento of Pentoport and with his kind permission, Gecko Research has been privileged to publish his work on our website. To find out more about Pentoport, please visit:

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U.S. inflation, housing data bolster rate hike argument

Reuters, Jul 17, 2015

U.S. consumer prices rose for a fifth straight month in June as the cost of gasoline and a range of other goods increased, further signs of firming inflation that strengthen the case for an interest rate hike this year.

Other data on Friday suggested the economy could support a tightening of monetary policy. Housing starts surged in June and building permits soared to a near eight-year high. Federal Reserve Chair Janet Yellen this week affirmed the U.S. central bank was keen to start raising interest rates later this year.

The Labor Department said its Consumer Price Index rose 0.3 percent last month after increasing 0.4 percent in May. Last month’s increase pushed the year-on-year CPI rate into positive territory for the first time since December.

The energy-driven disinflationary trend appears to have run its course. A report on Wednesday showed producer prices rose in June for a second straight month.

In a separate report, the Commerce Department said groundbreaking for new homes increased 9.8 percent to a seasonally adjusted annual pace of 1.17 million units in June. Permits for future home construction increased 7.4 percent to a 1.34 million-unit rate, the highest level since July 2007.

Economists anticipate that the housing market will mitigate the drag on the economy from a struggling manufacturing sector.

Firming price pressures, together with a tightening labor market and strengthening housing could give the Fed confidence that inflation will gradually rise toward its 2 percent target.

The Fed has kept its short-term interest rate near zero for more than six years. Most economists believe the Fed will pull the trigger on rates in September.

The dollar rose to a session high against a basket of currencies on the data, while prices for U.S. Treasuries fell.

GASOLINE, EGGS, RENTS BOOST PRICES

In the 12 months through June, the CPI edged up 0.1 percent after being unchanged in May. Economists polled by Reuters had forecast the CPI rising 0.3 percent from May and gaining 0.1 percent from a year ago.

The so-called core CPI, which strips out food and energy costs, increased 0.2 percent last month after rising 0.1 percent in May. Underlying inflation pressures have been tamed by a strong dollar.

In the 12 months through June, the core CPI rose 1.8 percent after May’s 1.7 percent increase. An inflation measure tracked by the Fed is running well below its 2 percent target.

Last month, gasoline prices increased 3.4 percent after jumping 10.4 percent in May. Food prices rose 0.3 percent, the largest increase since September 2014, as an outbreak of bird flu in some parts of the country causes a shortage of eggs. Egg prices surged 18.3 percent, the biggest gain since August 1973.

Elsewhere, the index for rent increased 0.4 percent, the largest rise since August 2013. With the residential vacancy rate near a 22-year low as a firming labor market boosts household formation, shelter costs are likely to continue rising.

There were also increases in the cost of recreation, new motor vehicles, tobacco, airline fares and personal care. These offset declines in the prices for apparel, medical care, used cars and trucks and household furnishings.

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Michael Pento: Bond Bubble Will Explode Violently

By Michael Pento, May 18, 2015

Central banks are incapable of saving economies or creating growth. The only thing a central bank can do is create inflation. These market manipulators set forth on a journey seven years ago to save the world by engaging in massive monetary manipulation, euphemistically called Quantitative Easing (QE), and a Zero interest rate policy known as (ZIRP).

As I could have told them before they started, all this easy money will fail to create viable growth. The economy, held back by massive debt levels, initially clocked in at 0.2% for the first quarter. This number is set to be revised down to negative territory due to a huge increase in the trade deficit during March. And the second half isn’t setting up to be much better either.

But the Fed was successful in re-inflating the housing and equity bubbles and also creating another new massive bubble in the bond market.

Despite tepid growth, most at the Fed have become anxious to wave the “Mission Accomplished Banner” and to move towards interest rate “normalization”. Ceremoniously, they have set goals for the economy to reach in order to begin that long journey: unemployment around 5% and inflation at 2%.

As the Fed’s luck would have it, discouraged would-be workers have dropped out of the labor force and have found it more profitable to sit home than to work, which has allowed the unemployment rate to approach the Fed’s target. The unemployment rate has finally returned to the 2008 bubble level of 5.4%. But when we look at the Employment to Population ratio it is nowhere near where it ought to be.

(59.3% today, down from 63.3% prior to the Great Recession.)

But those at the Fed stand determined to never let real data points get in the way of the narrative that printing money saved the economy. In fact, San Francisco Fed President, John Williams, was recently touting a new way to calculate GDP that he called GDP plus. It appears when you take out everything he defines as “noise”, first quarter GDP would have come in at exactly 1.7%. Perhaps a better term would be GDP minus: GDP minus all the things we wish didn’t happen in the economy this quarter.

Now the only thing hampering the Fed’s path to rate normalization is the “too-low” rate of inflation–the inflation resulting from unprecedented money printing and years of ZIRP that caused massive stock, bond and real estate bubbles doesn’t count in the government’s inflation indices. Nevertheless, the official core CPI number used to measure inflation appears at the moment to be “just right.”

And for a brief moment, if we dismiss those asset bubbles, ignore discouraged workers, cherry pick economic data points and squint a little–we can be deluded into believing the economy has reached Goldilocks Nirvana…or even Goldilocks Nirvana plus.

But before Goldilocks reaches for her porridge, she may want to pay closer attention to what the Bond Market is telling us.

Normally, interest rates are a product of credit and inflation risks. Until a few weeks ago, central banks got away with the notion they could monetize unlimited amounts of sovereign debt without creating inflation. That is until now; look at sovereign bond yields in the past month: the Italian 10 year went from 1.26 on April 14th, to 1.91%, Portugal–April 14th 1.71, to 2.49%, Spain April 14th 1.26, to 1.88%, France April 15th 0.35, to 0.99%, Germany April 16th 0.08, to 0.72%.   And all this is causing the U.S. 10 Year Note to jump from 1.87% on April 16th, to 2.31%.

For the past seven years, investors didn’t have to worry about credit risk because central banks were ready buyers regardless of a nation’s insolvent condition; as long as inflation was thought to remain quiescent. But here is a news flash–investors won’t own sovereign debt if real interest rates plunge much further into negative territory. And neither will they accept negative real and nominal yields on fixed income if they can instead own Precious Metals, Commodities, Real Estate, or any other hard asset.

There is also a lack of liquidity in bond markets because central banks have removed all the supply. Investors don’t want to buy new debt with negligible yields, but also don’t want to sell if central banks are providing a perpetual bid. Therefore, there is no trading outside of institutions front running the central banks’ purchases-again, as long as there is no inflation.

But here is the rub; once inflation becomes a problem central banks will then become sellers instead of buyers of bonds and principal depreciation will quickly erase the paltry yield away from investors.

And here is where it gets interesting: the Headline CPI is down 0.1% YOY in March, but the core rate of CPI is up 1.8%–coming very close to triggering the Fed’s “return to normalization” target. A steep decline in the price of oil that began in the summer of 2014 has dragged the overall CPI number down. But gas prices have risen over 30% since the January lows. And the effect of the energy price collapse on the headline number starts to diminish in July, and is completely erased by the end of the year.

Therefore, very soon the Fed should be confronted with all the data points it previously mapped out in order to start raising rates. But perhaps the central bank should be careful about what it wishes for. This is because seven years of interest rate suppression has created a powerful vacuum that could suck higher long-term interest rates in accelerated fashion.

On The Other Hand

Despite years of QE and ZIRP, the economy is still scraping along the bottom. If the Fed were to raise the cost of money above the one percent level, it will bring this bubble-addicted economy to its knees, as it provides the pin to the bubbles in real estate and equities. The growth rate in broad Money Supply (M3) has been falling from 9% in 2013, to just 3% today. Therefore, when short term interest rates rise it is also very likely that the yield curve will invert and cause money supply growth to turn sharply negative; just as it did during the Great Recession. This is precisely because the long-end of the yield curve has been artificially suppressed for so many years. Longer-dated maturities could discount even slower growth ahead, and the yield curve would quickly invert from its already compressed starting point.

As previously explained, if I’m wrong about the yield curve flattening after the Fed starts hiking rates, it will only be the result of the market losing complete confidence in the US tax base to service Treasury debt and for global central banks to keep inflation in check. This alternate scenario would occur if the Fed decided to hike rates just once and then sat on its hands for a long period of time. The Fed’s prolonged “patience” in hiking rates further would soon lead to that intractable rise in US long-term rates and result in a complete disaster for markets and economies worldwide.

Either Way We’re Sunk

Whether long-term interest rates rise or fall when the Fed begins its exit is still in doubt-it all depends on the slope of Fed Funds rate. The yield curve could quickly invert or rise intractably. However, the only sure outcome is chaos on a global scale because central banks have never been able to extricate the economy from the bubbles it created. Such is the inevitable result of the massive and historic intervention of central banks into the sovereign debt market. In other words, bubbles never pop with impunity and the international bond bubble is certainly not going to be the exception. Therefore, no matter what happens to interest rates in the future you can be sure of one thing…the suffering will be immense.

This article is written by Michael Pento of Pentoport and with his kind permission, Gecko Research has been privileged to publish his work on our website. To find out more about Pentoport, please visit:

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China February consumer inflation rebounds, producer deflation intensifies

Reuters, Mar 10, 2015

China’s annual consumer inflation recovered in February, exceeding expectations, but producer prices continued to slide, underscoring deepening weakness in the economy and intensifying pressure on policymakers to find new ways to support growth.

The producer price index (PPI) declined 4.8 percent in February, the National Bureau of Statistics said on Tuesday, extending factory deflation to nearly three years.

China’s statistics bureau attributed the rise in CPI to price rises in vegetables and fruit, while the decline in PPI – which analysts had expected to come in at minus 4.3 percent – was blamed on sliding prices for global commodities, in particular energy, which have undermined profitability at China’s industrial heavyweights.

The risk of deflation is rising for the world’s second-largest economy, as drag from a property market downturn and widespread factory overcapacity is compounded by an uncertain global outlook and falling commodity prices.

Analysts polled by Reuters had expected annual consumer inflation to be 0.9 percent in February, compared with a five-year low of 0.8 percent in January.

Chinese leaders announced last week an economic growth target of around 7 percent for this year, below the 7.5 percent goal that was narrowly missed in 2014.

The consumer price index target was put at around 3 percent for this year. Annual consumer inflation was 2 percent in 2014, well below the government’s target of 3.5 percent.

The People’s Bank of China (PBOC) has cut interest rates twice since November, on top of a reduction in bank reserve requirement ratios (RRR) in February, as regulators show signs of growing concern over lackluster data since the fourth quarter and growing deflationary pressures.

A newspaper owned by the central bank warned last month that China was dangerously close to slipping into deflation, highlighting increasing nervousness in policymaking circles as a sputtering economy struggles to pick up speed, despite a series of stimulus steps.

There could be some distortion caused by the timing of the Lunar New Year as it fell on January 31 in 2014 but fell on Feb 19 this year.

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