Saturday, 1 July 2006

US core inflation "contained" but other economies heating up along with World Cup

Plenty of economic data yesterday to chew on.

The US Commerce Department reported yesterday that personal income increased 0.4 percent in May, disposable personal income increased 0.3 percent and personal consumption expenditures increased 0.4 percent. The PCE price index increased 0.4 percent in May, compared with an increase of 0.5 percent in April. The PCE price index excluding food and energy increased 0.2 percent, the same increase as in April.

Reuters summarises that report, suggesting that "core inflation remains contained" but Americans still "borrowed more and saved less to support their shopping habits", pointing to a personal saving rate of negative 1.7 percent.

Other data highlighted in the Reuters story:

The University of Michigan's consumer sentiment index ended at 84.9 in June, up from the final May reading of 79.1...

The Economic Cycle Research Institute said its index on U.S. economic growth slipped to 136.0 last week from a downwardly revised 136.7 in the prior week...

However, the...National Association of Purchasing index fell more than expected in June to 56.5, its lowest since February... Its prices paid component jumped in June to 89.0, hitting an 18-year high, NAPM-Chicago said in a press release.

While Reuters may have described core inflation as mild, various measures of overall and core PCE inflation seem to be picking up pace recently, as shown by Mark Thoma at Economist's View. In fact, consumer spending in nominal terms in the second quarter has actually not been too bad, but real spending has been weighed down by the pick-up in inflation. On the other hand, David Altig at the macroblog thinks that "there isn't much evidence to support the view that underlying inflation trend is increasing -- or decreasing".

While the US data perhaps leaves some ambiguity on the direction of interest rates, other data yesterday suggest more rate hikes are coming elsewhere in the world.

Bloomberg reports some positive data from Europe:

The European Commission's index of sentiment among executives and consumers in the dozen euro nations rose to 107.2, up from 106.7 in May and the highest since March 2001. Consumer prices gained 2.5 percent, the same as the previous month, the EU's statistics office said in Luxembourg...

The commission today said in a separate report the economy is growing faster than it expected a month ago when it predicted a 2.1 percent expansion this year. The risks to that forecast are now "tilted to the upside," the quarterly report said...

In the U.K., Europe's second-largest economy, growth in the first quarter maintained the fastest pace of expansion in two years, a government report showed today. Growth of 0.7 percent from the previous quarter was above the predictions of all 31 economists polled beforehand...

Other official reports today showed French consumer confidence rose to minus 28 from minus 30. Demonstrating that weak spots remain, German retail sales had the biggest drop in two years in May, when they fell 2.2 percent from the previous month.

There was positive news from Japan as well yesterday. From AFP:

Japan's unemployment rate fell to 4.0 percent in May, the lowest since April 1998 and down from 4.1 percent in the previous month, the government said.

Meanwhile the core consumer price index (CPI) gained 0.6 percent in May from a year ago, in line with market expectations.

The core CPI in June for Tokyo -- the leading indicator for national price trends released -- was up 0.3 percent from a year earlier...

In May, household spending rose 1.3 percent month-on-month on a seasonally-adjusted basis but was down 1.8 percent from a year earlier.

I wrote on Thursday that some of the positive economic news appears related to the ongoing World Cup. Andrew Child at The Financial Times apparently agrees.

If the stats coming out of Europe this week are to be believed, football seems to be the economic driver of the moment. That’s right – football. You won’t find too many mentions of that in many textbooks. But the football showcase that is the World Cup in Germany does seem to be providing a pleasing distraction from inflation-led economic uncertainty.

Pleasing distraction indeed, especially for the Germans and Italians.

No comments:

Post a Comment