Thursday, 17 May 2007

Economic reports point to more rate hikes by ECB, BoE

Economic growth in the euro area has stayed relatively buoyant recently, but so has inflation. Bloomberg reports:

Inflation in the euro area remained at 1.9 percent in April as prices for food and drink rose, keeping the rate close to the European Central Bank's 2 percent ceiling...

Europe's economy grew a faster-than-forecast 0.6 percent in the first quarter from the fourth, when it expanded 0.9 percent. Reports in the last three weeks indicate that pace of growth has been maintained in the current quarter.

That should keep upward pressure on European bond yields, and a rate hike by the European Central Bank next month should proceed as expected.

The Bank of England may feel compelled to do the same. Again from Bloomberg:

The central bank said in its quarterly forecasts that it sees "upside" risks to inflation, which it reckons will exceed the 2 percent target in two years unless borrowing costs rise further. The bank also said economic growth will reach a 3 percent pace this year, the most since 2004, and the government reported earlier that jobless claims fell by 15,700 to 890,000 in April...

Yesterday, government data showed inflation eased to 2.8 percent in April from 3.1 percent in March, the highest in a decade after a surge in oil and energy costs...

Today's labor market report showed average earnings including bonuses rose 4.5 percent in the quarter through March, slower than the 4.6 percent gain in the three months through February, the Office for National Statistics said.

Excluding bonuses, wage inflation accelerated in the first quarter to 3.7 percent from 3.6 percent, the statistics office said. The number of workforce jobs rose to a record 31.58 million in December, today's report showed...

The claimant count rate declined to 2.8 percent in April, the lowest since November 2005, from 2.9 percent in March, the statistics office said today. Using International Labor Organization methods, the jobless rate held at 5.5 percent in the first quarter.

On the other hand, mixed economic data in the US should keep the Federal Reserve on hold for a while more. Recent housing data have been weak:

Builders broke ground on new dwellings at an annual rate of 1.528 million in April, a 2.5 percent increase from a revised 1.491 million rate the prior month that was weaker than previously estimated, the Commerce Department said today in Washington. Building permits slumped 8.9 percent to a 1.429 million pace, the fewest since June 1997...

A report yesterday showed builders became more pessimistic this month. The National Association of Home Builders/Wells Fargo sentiment index fell to 30 from 33 in April. The reading matched September's figure as the lowest since 1991. Readings below 50 mean most respondents view conditions as poor.

But industrial production appears to be rebounding.

The 0.7 percent increase in production at factories, mines and utilities followed a revised 0.3 percent decrease in March that was bigger than originally reported, Federal Reserve figures showed today. Capacity utilization, which measures the proportion of plants in use, rose to 81.6 percent from 81.2 percent in March...

Factory output, which accounts for about four-fifths of industrial production, rose 0.5 percent after rising 0.6 percent in March.

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