U.S. Consumer Prices Rose 0.4% in August U.S. consumer prices rose in August by the most since January, likely reassuring the Federal Reserve about the economy’s strength as it considers raising interest rates.
Excluding food and energy costs, so-called core prices grew 0.2%, the most since February. (…) Overall prices rose 1.9% in the 12 months through August, up from July’s rate of 1.7%. Core prices climbed 1.7% in the year through August, where it has stayed through summer.
Not so sure it will reassure the Fed. Core CPI was +0.2% in August but after 5 months totalling +0.3% and mainly because core services jumped +0.4% on spiking shelter and transportation services. Last 6 months, core CPI is only +1.4% annualized. Core goods keep deflating (-2.2% a.r. last 6 months).
Meanwhile, the pipeline is not filling any faster:
U.S. Producer Prices Rose 0.2% in August U.S. inflation weak despite conditions that would normally mean stronger price growth
The producer-price index, a measure of inflation experienced by businesses, rose 0.2% in August from a month earlier, the Labor Department said Wednesday. The increase, while modest, was the biggest since April.
Higher gasoline prices accounted for most of the jump. Excluding food and energy components, so-called core prices increased 0.1%, a meager jump. (…)
Expectations, likely based on rising commodity prices and the weak dollar, proved too high again (table from Haver Analytics):
- Core final demand up 0.4% last 3 months = +1.6% a.r. vs +1.9% YoY in August: slowing.
- Core goods up 0.2% last 3 months = +0.8% a.r. vs +2.0% YoY: slowing.
- Services up 0.1% last 3 months = +0.4% a.r. vs +2.1% YoY: stalling
- Intermediate Demand-Processed Goods up 0.1% last 3 months = +0.4% a.r. vs +4.1% YoY: stalling
Not much pricing power anywhere. Even Services inflation, mainly driven by labor costs, is stalling. There’s a lot more than “transitory factors” here. Slowflation is everywhere.
(…) The biggest slowdown last month was in infrastructure investment, which ticked down to 11% growth year over year from nearly 16% in July. Infrastructure projects of dubious merit are arguably the biggest source of China’s bad debt problem. More than half of all new liabilities at state-owned firms built up between 2007 and 2015, some 40 trillion yuan ($6 trillion), were infrastructure- and public-service related according to Andrew Batson, China Research Director at Gavekal Dragonomics. Many of those projects are uneconomic and now spend their time weighing down bank balance sheets rather than contributing to growth.
The problem is that Chinese infrastructure is a huge driver of both domestic industry and demand for materials world-wide.
In line with slowing investment growth, most key Chinese industrial indicators moved lower last month: Steel output slowed while cement production dropped outright on the year, falling at its fastest rate since 2015. Electricity production growth nearly halved, while coal power output dropped from 10.5% growth in July to just 3.5% in August.
(…) real-estate investment in August ticked up again to 7.8% growth from the same time a year ago, reversing its drop to just 4.8% in July. The July figure was the lowest in a year and a bearish signal on the single most important sector for Chinese growth and commodity demand. Second, credit growth picked up again in July, in a sign that policy makers are also concerned that investment is now slowing too quickly. (…) (Charts from The Daily Shot)
Reminder from the recent Markit/CaixinChina PMI:
China’s manufacturing sector remained in expansion territory in August, fuelled by the strongest increase in new business for just over three years. Firmer foreign demand was a key driver of new order growth, with export sales rising to the greatest extent in over seven years in August. As a result, companies expanded their production schedules and buying activity, while business confidence rose to its highest for five months.
And “services companies registered the quickest upturn in business activity for three months.”
Trump Blocks China-Backed Fund From Buying U.S. Chip Maker Lattice Semiconductor President Donald Trump blocked a Beijing-backed fund’s attempt to buy an American chip maker, signaling his administration will closely scrutinize Chinese efforts to invest in U.S. semiconductor technology.
Source: BMI Research (via The Daily Shot)
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