Inflation moderates

The Bank of Canada left interest rates unchanged yesterday, just one of several indications yesterday suggesting that inflation fears are receding.

The Eurozone annual inflation rate fell to 1.7 percent in September, according to Eurostat. Monthly inflation was zero. Not surprisingly, fuels for transport had the biggest downward impact on inflation in September.

It was a similar story in the UK, where lower petrol prices pushed headline inflation lower to an annual 2.4 percent in September from 2.5 percent in August.

And it was a similar story for producer prices in the US. From Reuters:

Producer prices fell 1.3 percent in September, the sharpest drop since April 2003, due to a record fall in gasoline costs, the Labor Department said. Prices excluding food and energy rose 0.6 percent, mainly because of higher auto prices... But when the effect of higher auto prices was excluded, the change was a much slighter 0.1 percent rise, the Labor Department said.

Data on industrial production provide hope that the moderation in inflation is sustainable.

... U.S. industrial output fell 0.6 percent in September, compared with forecasts for no change...

The drop in capacity utilization to 81.9 percent last month from 82.4 percent in August also provided helpful economic slack at a time when some policy-makers think the economy is running at full employment and still at risk from inflation.

Meanwhile, hopes that the slowdown does not turn into a recession got a slight boost yesterday from homebuilder sentiment.

U.S. homebuilder sentiment climbed slightly in October for the first time in eight months, thanks to lower mortgage rates and a more upbeat consumer outlook... The homebuilders index rose to 31 from 30 in September, offering a ray of hope that the worst may be over for the housing sector.

Other economic data elsewhere were mixed.

Industrial production in the euro area rose 1.8 percent in August after falling 0.4 percent in July. However, the ZEW index of investor and analyst expectations in Germany dropped from minus 22.2 in September to minus 27.4 in October, the lowest since March 1993.

In Japan, the tertiary index, a measures of spending on services, rose 0.7 pct in August from July. It was the first gain in three months.