This a.m: CPI for all items rises 0.9% in October as most indexes increase
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.9 percent in October on a seasonally adjusted basis after rising 0.4 percent in September, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 6.2 percent before seasonal adjustment.
The monthly all items seasonally adjusted increase was broad-based, with increases in the indexes for energy, shelter, food, used cars and trucks, and new vehicles among the larger contributors. The energy index rose 4.8 percent over the month, as the gasoline index increased 6.1 percent and the other major energy component indexes also rose. The food index increased 0.9 percent as the index for food at home rose 1.0 percent.
The index for all items less food and energy rose 0.6 percent in October after increasing 0.2 percent in September. Most component indexes increased over the month. Along with shelter, used cars and trucks, and new vehicles, the indexes for medical care, for household furnishing and operations, and for recreation all increased in October. The indexes for airline fares and for alcoholic beverages were among the few to decline over the month.
The all items index rose 6.2 percent for the 12 months ending October, the largest 12-month increase since the period ending November 1990. The index for all items less food and energy rose 4.6 percent over the last 12 months, the largest 12-month increase since the period ending August 1991.
U.S. Producer Prices Are Strong Again in October
The Producer Price Index for Final Demand rose 0.6% in October following a 0.5% gain in September. The y/y increase remained at a record high of 8.6%. The series dates back to 2009. A 0.7% rise had been expected by the Action Economics Forecast Survey. The PPI excluding food and energy rose 0.4% last month after a 0.2% gain. The y/y increase remained at the record 6.8%. A 0.5% increase had been expected. The PPI less food, energy and trade services also rose 0.4% (6.2% y/y), double the September rise.
Higher energy prices led last month’s rise in the PPI with a 4.8% (42.4% y/y) increase. Gasoline prices surged 6.7% in October (89.9% y/y) while home heating oil prices rose 13.0% (114.8% y/y). Natural gas prices increased 3.8% last month (28.7% y/y) but the cost of electric power eased 0.3% (+5.6% y/y).
Food prices eased 0.1% during October (+10.5% y/y) and offset some of this energy price strength. (…)
Finished consumer goods prices less good & energy rose 0.3% in October (5.5% y/y). Nondurable consumer goods prices gained 0.3% (4.7% y/y), the smallest monthly increase since April. Durable consumer goods prices edged 0.1% higher last month (6.9% y/y). Prices for private capital equipment strengthened 0.4% (5.6% y/y) and have been strong since the spring.
Services prices rose a diminished 0.2% in October (5.9% y/y) for the second straight month. Trade services prices rose 0.4% (8.5% y/y) and also have been strong since the spring. Prices less trade, transportation & warehousing edged 0.1% lower (+4.2% y/y).
Construction product prices surged 6.6% last month (12.3% y/y) reflecting a 7.5% rise (13.3% y/y) in construction costs for private capital investment.
Intermediate goods prices jumped 2.1% (25.4% y/y) due to a 29.1% surge (160.0% y/y) in unprocessed fuel costs.
China Factory Inflation Grows at Record Pace on High Energy Prices Producer prices jumped 13.5% in October, fueling worries about continued global inflation
China’s producer-price index rose by a record 13.5% in October from a year earlier, accelerating from a 10.7% increase in September, according to the National Bureau of Statistics. (…)
Consumer inflation in the world’s second-largest economy rose by 1.5% last month from a year earlier, up from 0.7% in September, though it remained below the official target of around 3% for this year. (…)
Higher coal and metal prices could deter local authorities from buying steel and other commodities needed for infrastructure construction, a key driver of growth that China often relies on to stave off slowdowns.
As a result, China’s growth could slow to a 3.6% year-over-year expansion in the fourth quarter, down from 4.9% in the third quarter, according to a forecast from Zhaopeng Xing, chief China strategist at ANZ. (…)
ZeroHedge has better reporting on China’s inflation:
(…) In reality, however, there was just one key variable – thermal coal, which as we said last month indicates that PPI will continue rising far higher, although judging by the recent sharp reversal in the price of Chinese thermal coal (if only for the time being), this may be as high as PPI gets.
Or so Beijing should hope because with the spread between PPI and CPI hitting a new all time record, virtually no Chinese companies that use commodity inputs – which in China is a vast majority – are making any profits.
The gap between upstream and downstream prices “continues to highlight weak consumer demand in the economy and the immense pressure on profit margins downstream firms are facing,” said Michelle Lam, greater China economist at Societe Generale SA in Hong Kong. (…)
- Overall CPI would have risen almost 2.5% if not for the effects of falling pork prices, according to the NBS.
- Non-food CPI inflation increased to +2.4% yoy in October from +2.0% yoy in September, primarily on a sequential increase (especially fuel costs). Fuel costs increased by +31.4% yoy in October (vs. +22.8% yoy in September).
- Core CPI inflation (headline CPI excluding food and energy) edged up to +1.3% yoy in October (vs. +1.2% in September), with inflation in services flat at +1.4% yoy in October. In other words, producers are passing on a growing part of their own surging costs on to consumers, but nowhere near all as the record gap between CPI and PPI shows.
- Local stocks were certainly not happy, with China’s CSI 300 Index sliding as much as 1.3% amid signs that producers are passing on higher costs to consumers, and that the PBOC may have no choice but to tighten financial conditions at the expense of risk assets. Several food companies have already announced price hikes of up to 15%, including Haixin Foods, Anjoy Foods and Jiajia Food, due to rising costs for raw materials. (…)
China’s Credit Stabilizes as PBOC Encourages Banks to Lend
(…) The PBOC recently told banks to ease some excessive restrictions on lending to the property sector as concerns mounted over the industry’s health with the deepening of China Evergrande Group’s debt crisis. (…)
- BTW:
- BTW #2: Anne Stevenson-Yang, J Capital’s excellent analyst, informs us that
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Property remains the principal vehicle for investment in China, so the current decline in property prices threatens to drag down returns in every investment.
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Given the decline in property values, wealthy Chinese are moving money into financial assets, especially stock market-related funds.
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The
shift out of property investments suggests that China’s decline in construction may be sustained and that the price declines for commodities like iron ore and coal will continue. -
Goldman Sachs: “While we expect macro policies to ease somewhat to support growth next year, much of the structural tightening that intensified this year – especially in the property market – is here to stay, in our view. Therefore, we forecast real GDP to grow 4.8% in 2022 and expect average annual growth of only 4.5% during 2022-25, significantly below market consensus. (…) we believe the Chinese property market is in a multi-year slowdown. (…)
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“The experience of the US-China trade war and the Covid pandemic have likely convinced Chinese policymakers that resilience is more important than speed when it comes to growth. As President Xi aims to secure a third term next year, the leadership seems to be taking an even longer-term view on development than before. With this backdrop, we believe the Chinese economy is settling into a new regime where policymakers accept slower growth in the near term for a more resilient economy in the long run.”
European Gas Prices Slump as Russia Finally Increases Supplies
Benchmark Dutch futures fell more than 10% after flows to Europe via Ukraine and Poland edged higher Wednesday. Gazprom PJSC booked some pipeline capacity on the Ukrainian-Slovakian border for the day, bringing supplies through the route in line with Russia’s long-term transit agreement with its neighbor.
Putin said late last month that Gazprom would refill its European storage facilities after finishing Russia’s domestic stockpiling campaign, which ended Monday. Any extra supply is welcome, as Europe started its heating season with the lowest inventories in more than a decade.
Traders are watching every move by Europe’s top supplier, focusing on how much gas is delivered beyond contracted volumes. Auctions for December pipeline capacity run next Monday, which will cast light on whether extra shipments could materialize. Additional bookings may be unlikely unless Gazprom sees progress in the certification of the contentious Nord Stream 2 pipeline, some analysts said. (…)
Meanwhile, Russia is boosting gas production, with a full-year output forecast at 777 billion cubic meters, up 12% from 2020, Energy Minister Nikolay Shulginov said Wednesday.
For now, Russian gas deliveries remain much lower than normal for the time of the year and the gains this week come after a recent slump. The bearishness is also limited by colder weather forecasts for large parts of Europe, Energi Danmark said in a note on the website.
US equity investor sentiment surges higher as earnings outlook brightens
The Risk Appetite Index from IHS Markit’s Investment Manager Index™ (IMI™) monthly survey, which is based on data from around 100 institutional investors each month, rose from +7% in October to +36% in November, its highest since the survey peak of +54% seen back in April 2021. As such, the survey indicates a substantial improvement from the near-evaporation of risk appetite recorded back in September.
The swelling of risk appetite was accompanied by a marked uplift in investors’ expectations of market returns over the coming month to a survey high, surpassing the prior (April) peak by a wide margin and building further on the improvement seen in October.
By comparison, the survey’s Expected Returns Index had fallen to -12% in September, which preceded the brief market fall, before rising again to signal to a marked turnaround in sentiment which has gathered momentum over the past two months. The index has now risen to +38%.
The biggest drivers of the market in the near-term are considered to be equity fundamentals and shareholder returns, the former viewed as the most supportive since August and the latter seen as more supportive than at any time over the 14-month survey history.
However, November also saw investors’ expectations of market support from both central bank and fiscal policy lift higher, having sunk in both cases to survey lows in October. Similarly, the macro environment is also seen as more positive for equities than viewed in October, with both the US and global economies set to provide the biggest contributions to returns since July, coinciding in particular with signs of the COVID-19 Delta wave easing.
With the S&P 500 reaching new highs, valuations against historical levels meanwhile remain by far the largest perceived anchor on the market, and is the only factor not to see an improving trend in November.
The political environment is again perceived as a net drag on returns, albeit slightly less so than in October, reflecting concerns over domestic budget spending as well as broader geopolitical issues and China’s tech regulation.
In terms of sector preferences, financials have retained the most-favored spot in November for a third successive month having seen the biggest positive shift in sentiment over the past year, followed by healthcare. However, it was tech stocks that enjoyed the largest upswing in favorability compared to October, with sentiment rising to the highest since February.
Economy hopes meanwhile lifted sentiment towards consumer discretionary, industrial and basic materials, though in some cases inflation and supply line worries continued to constrain appetite. Utilities, real estate and consumer staples are seeing ongoing bearish sentiment.
These improving factors coincide with a strong Q3 earnings season which has led investors to revise up their expectations of Q4 earnings on average.
The Q3 results so far have prompted 32% of investors to ramp up their expectations of Q4 earnings, according to the latest IMI poll, outnumbering the 10% that have revised down their expectations by three-to-one.
The net upward revision of +22% is lower than the reading of +30% seen back in August, but nevertheless is a strongly positive reading.
The overall net upward revision to Q4 earnings estimates tallies with the substantial jump in risk appetite recorded by the November IMI survey and coincides with equity fundamentals being the strongest expected driver for near-term market returns in the latest poll. (…)
Nordea offers mitigating info to the earnings optimism:
Nordea/Macrobond (via The Market Ear)