There were more signs of slowing in the US yesterday. From Reuters:
The University of Michigan's preliminary reading of consumer sentiment in August was 78.7, down from July's final reading of 84.7, said sources who saw the subscription-only report. The median forecast of Wall Street economists polled by Reuters was 83.6...
Also on Friday, the Economic Cycle Research Institute, an independent forecasting group, reported that its weekly index of U.S. economic growth ticked up slightly.
But the index's annualized growth rate hit its lowest level in almost two years, falling in the latest week to negative 1.4 percent. The prior week's rate was negative 0.8 percent, revised downwards from 0.4 percent.
But the consumer sentiment report does not necessarily mean that the Fed's job is done.
The report's preliminary August reading on one-year U.S. inflation expectations was 4.2 percent, up from 3.2 percent in July. Median expectations for inflation over a five-year horizon increased to 3.1 percent from 2.9 percent.
The Bank of England may also have more tightening to do. Reuters reports an increase in mortgage lending in the UK in July.
The British Bankers' Association said net mortgage lending rose by 5.7 billion pounds, up from 5.6 billion pounds in June. That took it above the average 5.3 billion pound increase over the last six months...
The Building Societies Association said in a separate release mortgage approvals rose to a seasonally adjusted 5.035 billion pounds in July from 4.999 billion pounds in June -- the highest July figure on record.
The BBA added that underlying credit card lending fell by 319 million pounds, compared with a 268 million fall in June. Consumer credit rose 307 million pounds overall.
And a report on M4 from the Bank of England itself tells a similar story, showing rapid growth rates in money supply and credit.
Meanwhile, in Germany, producer price inflation stayed high in July. From Bloomberg:
Producer-price inflation in Germany, Europe's largest economy, remained near a 24-year high in July on increased costs for energy and metals.
Goods from newsprint to plastics were 6 percent more expensive in July than a year earlier after rising 6.1 percent in June, the Federal Statistics Office in Wiesbaden said in a statement today. Economists forecast a 5.9 percent increase, according to the median of 33 estimates in a Bloomberg News survey. From June, prices rose 0.5 percent.
The Bank of Japan appears sanguine, though. From AFP/CNA:
Bank of Japan governor Toshihiko Fukui has said the central bank needs "a little more time" to lift interest rates after it ended its unorthodox zero-rate policy last month, a report has said.
On the other hand, there has been a flurry of action in China. Reuters reports the latest one.
China raised interest rates on Friday for the second time in four months in the latest effort to tame a boom in credit and investment that the central bank said posed pressing problems for the economy.
The People's Bank of China (PBOC) said it had ordered an increase of 0.27 percentage point in commercial banks' benchmark one-year deposit and lending rates. The deposit rate is now 2.52 percent and the lending rate stands at 6.12 percent.
And if some economists are correct, there may be more in store.
To Zhong Wei, an economist at Beijing Normal University, this is a strong pointer that the authorities are willing to allow the yuan to climb faster. It has risen just 1.7 percent since it was depegged from the dollar in July 2005.
"The rate move indicates that the pace of the yuan's appreciation will significantly accelerate this year," he said.
Many economists believe Friday's rise does not spell the end of the tightening cycle. For an economy growing at nearly 15 percent in nominal terms, money remains mouth-wateringly cheap.
"Signals coming through are that we will see more tightening measures, both rate hikes and increases in reserve ratios," said Peter Morgan, chief Asia economist for HSBC in Hong Kong.
"The point is, when you have these nickel-and-dime hikes, it's not going to work very much," he said. "Real rates are low relative to growth: that's the basic issue."
If some central banks appear to be slower to tighten than they should be, Morgan Stanley's Andy Xie has some possible explanations.
First, globalization has created positive externality in the tightening of an economy. When one economy tightens, it shifts down the global demand curve, which decreases tightening pressure on everyone else...
The tightening externality turns global tightening into a strategic game. Everyone is waiting for others to tighten...
Second, asset markets are much bigger relative to GDP than before, which makes the effect of tightening less predictable...
If the tightening is fast, the bubble could burst quickly, and the global economy could go straight from inflation to deflation. Hence, central banks see inflation as the lesser evil.
Third, most central banks still enjoy credibility in fighting inflation. Hence, inflation expectations are creeping up very gradually – i.e. central banks see low cost in tolerating a bit more inflation than promised.
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