Will inflation thwart the US economic recovery?
Corporate America is poised to deliver the best performing season in years, raising hopes for a quick economic recovery. But executives point to a key pressure point on analyst calls: rising prices.
For months, Wall Street investors have worried about inflation as the country’s economy reopens from the pandemic. On Wednesday, the US Department of Labor’s Core Consumer Price Index for April may provide the clearest evidence to date that these price pressures could become a growing threat to the recovery.
For March, the core CPI, which excludes the more volatile food and energy prices, remained relatively subdued, increasing 1.6 percent year-over-year. But economists polled by Bloomberg expect that number to climb to 2.3% for April, which would be the highest level since the coronavirus pandemic took hold in the United States.
“In the short term, it’s clear that demand is going to grow for a while, and I think that’s why we’re seeing inflation rising,” said Jean Boivin, director of the BlackRock investment institute.
Bond investors are leery of inflation and pulled out of US government bonds this year, pushing the 10-year yield up to 1.75% in March. Since then, the yield has fallen below 1.57 percent. A lackluster set of US jobs figures on Friday could further tame the nerves of inflation. But rising consumer prices are still high on worry lists, especially if they come together enough to test the Federal Reserve’s resolve for a bountiful stimulus.
“We keep hearing about risks, be it valuations, inflation, upside [coronavirus] case again, ”said Esty Dwek, head of global market strategy at Natixis. “There are enough concerns lingering in the minds of investors that we have not fallen into complacency.” Aziza Kasumov
How fast is the UK economy rebounding?
With the Covid-19 vaccination program well advanced and the easing of restrictions, the UK economy is recovering from its latest pandemic-induced decline at the start of the year. But for investors, the question is how fast.
Economic growth data for March will provide the latest clue on Wednesday. Economists polled by Bloomberg expect growth to accelerate to 1.3% per month from the marginal 0.4% increase in February, in part following a surge in the industry. education when schools reopen. However, quarterly data is expected to show a decline of 1.6%.
Last week, the Bank of England revalued its growth forecast for 2021, postponing the point at which it expects the economy to return to its pre-pandemic peak in the last quarter of this year. Any further upturn in growth could prompt investors to assess an earlier unwinding of the BoE’s bond purchase program or even interest rate hikes, markets are currently anticipating two by the end of 2024 – which would raise the prices of sterling and lower the prices of gilding.
“The data is going to get a pretty straightforward reading of Bank of England policy,” said George Buckley, chief UK economist at Nomura. “The stronger the recovery, the less need for so much monetary policy support.”
The BoE “withdrew from the direction and management of the market”, leaving the door open to a change in the implicit path of interest rates, according to Bank of America UK economist Robert Wood.
“As economic data improves in the coming months, we continue to see little to dampen hawkish market movements,” Wood said. Tommy stubbington
How concerned should investors be about Chinese inflation?
Chinese inflation is back at the center of investor concerns as factory exit prices rise due to the country’s rapid recovery from the coronavirus pandemic.
April’s consumer price index, released on Tuesday, is expected to post a 1% year-over-year increase, economists polled by Bloomberg said. Meanwhile, same-day producer price data is expected to rise 6.5% over the same period – their fastest growth rate since 2017.
Producer prices, which measure rates leaving the plant, have been pushed up in part because of the rising cost of petroleum and a host of other commodities. In January, producer prices rose for the first time since the onset of the coronavirus crisis and in March they jumped 4.4%.
Consumer price inflation entered negative territory for the first time in more than a decade in November. However, the measure was heavily skewed by pork prices, which constitute a large part of the commodity basket and increased in 2019 due to swine fever.
The expected increases in inflation figures come as the Chinese economy continues to grow. By the end of last year, the key measure of growth had already surpassed its pre-pandemic level, leading to shifting expectations for rate changes and a credit crunch in the months that followed.
The country’s policymakers and advisers have warned of the risk of asset bubbles, especially in the real estate sector.
Macquarie’s Larry Hu said inflation was “the issue on everyone’s mind,” but suggested it should be soft in China this year. “Look at the United States, not China, for the risk of rising inflation,” he noted. Thomas hale