Subdued Inflation Data Ease Market-Volatility Worries
U.S. Government Bonds Advance After Inflation Fails to Surge
U.S. government-bond prices bounced Tuesday after closely watched data on consumer prices signaled inflation remains muted, easing concerns among investors that rising prices could spark a fresh wave of volatility in financial markets.
(…) Unrounded, the CPI showed an even smaller increase: by 0.150% in February from 0.539% in January. Excluding the volatile food and energy categories, so-called core inflation slowed to a rate of 0.182% in February from January’s 0.349%, the biggest increase since March 2005. (…)
Recent data now show the economy in a sweet spot with moderate inflation in February, together with bumper job creation, a 4.1% unemployment rate and strong consumer sentiment readings. (…)
Again, the facts:
- Total CPI: Last 7 months annualized: +3.8%. Last 4 months a.r.: +3.6%. Last 3 months a.r.: +3.6%. Last 2 months a.r.: +4.3%.
- Core CPI: Last 7 months annualized: +2.2%. Last 4 months a.r.: +2.4%. Last 3 months a.r.: +2.8%. Last 2 months a.r.: +3.0%.
Some more facts:
According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (1.9% annualized rate) in February. The 16% trimmed-mean Consumer Price Index rose 0.1% (1.2% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics’ (BLS) monthly CPI report.
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16% trimmed-mean CPI: last 3 months annualized: +2.4% vs +2.0% during the previous 3 months.
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Median CPI: +2.8% vs +2.8%.
The Federal Reserve Bank of Cleveland provides daily “nowcasts†of inflation for two popular price indexes, the price index for personal consumption expenditures (PCE) and the consumer price index (CPI). “Nowcasts†are estimates or forecasts of the present. The Cleveland Fed produces nowcasts of the current period’s rate of inflation—inflation in a given month or quarter—before the official CPI or PCE inflation data are released. These forecasts can help to give a sense of where inflation is now and where it is likely to be in the future.
The Atlanta Fed’s sticky price index sorts the components of the consumer price index into either flexible or sticky (slow to change) categories based on the frequency of their price adjustment.
The chart below plots the 3-m annualized change in the core sticky CPI (red) and the core flexible CPI:
- The prices charged by small businesses, as reported by the NFIB survey, point to higher inflation ahead. (The Daily Shot)
Source: Pantheon Macroeconomics
I am not making any forecasts here, simply laying the facts out. The danger with inflation is that we all get the boiling frog syndrome. What is obvious is that most media and pundits are now wearing rose colored glasses.
The average rent for apartments in multifamily buildings only increased $1 between January and February to $1,364, according a new report from real-estate data company Yardi. On a year-over-year basis, rental prices were only 2.7% higher, making it the weakest seasonal gain since the housing market recovery began.
Since last summer, rental prices have barely changed — hovering around the all-time high of $1,365 set in August, according to the Yardi analysis. But that could change in the months ahead as more people choose to continue renting thanks to the GOP-led tax reform that altered some deductions that benefited homeowners. (…)
Facts: CPI shelter: last 3 months annualized: +3.0% vs +3.1% during the previous 3 months.
Gundlach Says 10-Year Treasury Above 3% Would Drive Down Stocks
Measure of US borrowing costs flashes amber Widening spread between Libor and OIS may point to structural changes in the market
China’s Economy Grows Faster Than Expected on Strong Demand for Exports
Industrial production, a rough proxy for economic growth, expanded by 7.2% in January and February from a year earlier, the National Bureau of Statistics said on Wednesday, well above the 6.2% pace in December and forecasts for a 6.1% rise by economists polled by The Wall Street Journal.
China releases combined data for January and February to limit distortions caused by the timing of the Lunar New Year holiday, which fell in January last year and February this year. (…)
Fixed-asset investment, a closely watched indicator of construction activity, climbed 7.9% in the two-month period from a year earlier, quickening from a 7.2% increase in 2017 and beating forecasts for a 7% gain. Retail sales grew 9.7% from a year earlier, compared with a 9.4% rise in December and forecasts for 9.6% growth. (…)
Property investment, including in commercial and residential real estate, rose 9.9% in the first two months, compared with a 7% pace for the full 2017. Housing sales by value continued to grow at a double-digit pace, although the 15.7% rise was down from a 21.2% gain in December. (…)
Should Canada heed the BIS “warning�
According to the Bank of International Settlements (BIS), risks are building in the Canadian credit market. According to the BIS, Canada, China stand out with their credit-to-GDP gap flashing red, i.e., an early warning indicator for stress in domestic banking systems. According to a recent paper by the Bank of Canada, the BIS warnings on Canada should be taken with a grain of salt.
For one, private credit in Canada includes Crown corporations, entities that are backed by the creditworthiness of federal or provincial governments. For another, the Bank of Canada argues for excluding lending between affiliated companies as this type of lending is not being extended directly by financial institutions. These adjustments alone reduce the Canadian credit-to-GDP ratio from 213% to a much less threatening 170%.
Finally, we would note that the BIS methodology does not control for demographics and the structure of labour markets that are so critical in assessing the longer-term sustainability of a domestic banking system. For example, employment surged 2.3% in 2017 in Canada, the largest increase in fifteen years. As today’s Hot Chart shows, the employment-to-population stands at 62% in our country, the second highest in the OECD. Meanwhile, the BIS report suggested that all was fine and dandy in Italy and Spain where less than 40% of the population is employed! (NBF)
Elderly in U.S. Are Projected to Outnumber Children Americans over 65 years old will outnumber children in the U.S. by 2035, a first in the nation’s history, according to updated Census Bureau projections.
The Census Bureau projects the country would grow to 355 million by 2030, five million fewer than it had estimated three years ago. That is an annual average growth rate of just 0.7%, in line with recent rates but well below historical levels.
Unlike many European nations, the U.S. would continue to grow, reaching 404 million by 2060. (…)
This year’s prime-age workforce—ages 25 to 54—is about 630,000 smaller than the Census Bureau projected it would be just three years ago. The bureau projects the prime-age workforce will grow 0.5% a year through 2030, down from a 2014 projected annual rate of 0.58% for the same period. (…)
The projections assume no major changes in immigration policies.
As the nation ages and birthrates remain historically low, immigration looms larger in shaping the future. The bureau projects that by 2030, net immigration would rival natural increase—the surplus of births over deaths—as a share of population growth. By 2040, immigration would be more than twice as large as the natural increase.
As a result, the share of Americans who are foreign-born, now about 13%, is expected to reach a record 14.9% by 2028, topping a mark set in 1890. That share would rise to 17.2% by 2060. (…)
Whites who aren’t Hispanic will begin shrinking as a group by 2024. They would drop below half of the population by 2045, two years later than the bureau estimated just a few years ago.
By 2020, less than half of those under 18 years old would be non-Hispanic white. (…)
