Friday, 15 April 2011

US producer prices rise, Singapore tightens monetary policy

Bloomberg reports increases in producer prices and jobless claims in the US:

Wholesale costs in the U.S. rose 0.7 percent in March, led by higher prices for energy, light trucks and passenger cars.

The increase in the producer-price index was smaller than forecast as food prices unexpectedly dropped for the first time since August, Labor Department figures showed today in Washington. The median projection in a Bloomberg News survey was for a 1 percent gain. The so-called core measure, which excludes volatile food and energy costs, increased 0.3 percent, more than estimated...

Another Labor Department report today showed more Americans unexpectedly filed first-time claims for unemployment insurance last week, reflecting greater-than-normal volatility at the end of the quarter. Applications for jobless benefits rose 27,000 in the week ended April 9 to 412,000, the most in two months...

Compared with a year earlier, companies paid 5.8 percent more for goods last month after a 5.6 percent rise in February.

Core wholesale prices climbed 1.9 percent in the 12 months ended in March, up from a 1.8 percent increase the prior month and the biggest year-over-year gain since August 2009.

With signs of inflation picking up in the US, Richmond Fed President Jeffrey Lacker is suggesting that it may be time to start tightening monetary policy. From Bloomberg:

Federal Reserve Bank of Richmond President Jeffrey Lacker said policy makers were too slow to withdraw monetary stimulus last decade and should tighten credit this time before inflation picks up too much.

“Four years of 3 percent inflation may not have been the worst of all possible outcomes, but I do not consider it a success,” Lacker said today in a speech in Baltimore, referring to the period from 2004 to 2007. “I hope we do better this time.”

Lacker is in the minority among Fed officials though.

Lacker is among a minority of Fed policy makers who have indicated they may favor a move this year to start reversing record monetary stimulus, while Chairman Ben S. Bernanke’s top lieutenants support keeping near-zero interest rates in place to help reduce unemployment...

Lacker was the fifth policy maker giving public remarks today. Fed Governor Elizabeth Duke said in Washington that the central bank is “absolutely committed” to price stability and will “do our job” to control inflation.

Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis, said in Helena, Montana, that core inflation “is very low right now” and he doesn’t see many signs of price pressures.

Also, Fed Governor Daniel Tarullo said in Washington that he sees no need to either terminate the central bank’s program of large-scale asset purchases before it’s scheduled to end in June or to increase its size.

Federal Reserve Bank of Philadelphia President Charles Plosser, in a New York speech, restated his call for the central bank to adopt a formal inflation goal, saying it would be “particularly useful when we begin to unwind the extraordinary accommodation measures that we took to mitigate the crisis.”

In contrast to the US, Asian central banks have already been tightening monetary policy for some time, and the trend continued in Singapore on Thursday. From Bloomberg:

Singapore’s third monetary policy tightening in a year may prompt Asian central banks to allow further interest-rate and currency gains to prevent surging prices from hurting their economies.

The island’s dollar, the best-performing Asian currency outside Japan in the past year and the nation’s main tool to manage inflation, will be allowed to rise further, the Monetary Authority of Singapore said yesterday. While South Korea and Indonesia refrained from raising rates this month, policy makers signaled they will take steps to curb price gains if needed.

“MAS remains well ahead of the curve after aggressive moves last year,” said Vishnu Varathan, an economist in Singapore at Capital Economics (Asia) Pte. “The other central banks have to ask themselves how much tightening they want to do and how soon they want to do it. There’s still some feet- dragging and they can’t be seen hesitating too much as it will send the wrong signals to the market.”

Actually, even Singapore can't be said to be ahead of the curve in tightening considering the GDP growth data and inflation forecast that were also released on Thursday.

The island’s gross domestic product grew 23.5 percent last quarter from the previous three months, more than twice the pace economists forecast, according to preliminary estimates from the trade ministry yesterday. Earnings at Singapore companies including lender DBS Group and property developer City Developments Ltd. have surged after the economy’s expansion boosted demand for loans and spurred home prices to a record...

Singapore’s consumer prices gained 5 percent or more in the first two months of 2011. The central bank said yesterday inflation may reach the upper end of its 3 percent-to-4 percent forecast range this year.

One currency that clearly has not appreciated as much as many would have liked is China's. Bloomberg reports that China's foreign exchange reserves have surged again.

China’s foreign-exchange reserves exceeded $3 trillion for the first time, highlighting global imbalances that Group of 20 finance chiefs aim to tackle at meetings in Washington.

China’s currency holdings, the world’s biggest, swelled by $197 billion in the first quarter to $3.04 trillion, the central bank said yesterday. New loans were a more-than-estimated 679.4 billion yuan ($104 billion) in March, it said.

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