Thursday, 12 May 2011

China cools, US trade deficit rises, BoE signals rate hike

There were further signs of cooling in China's economy on Wednesday although the inflation rate eased only slightly in April. From Reuters:

China's industrial output growth eased much more than expected in April to suggest the world's second-biggest economy is cooling, reducing the need for further aggressive monetary policy tightening even as inflation remains stubbornly high.

Consumer inflation eased modestly to 5.3 percent in April from a 32-month high in March of 5.4 percent. The outcome topped expectations but still underlined the view that price pressures are peaking and may start to ease in the second half of 2011.

Industrial output rose 13.4 percent from a year earlier, but that was more than a full percentage point below both expectations and a strong pace in March.

Retail sales growth eased more than expected while annual increases in money supply and outstanding yuan loans hit their lowest pace in 29 months, signs that measures to slow the economy are starting to bite.

In the US though, the trade deficit widened in March. Bloomberg reports:

The U.S. trade deficit widened more than forecast in March as the highest oil prices in more than two years boosted imports, eclipsing record exports.

The trade gap rose 6 percent to $48.2 billion, the biggest since June, from $45.4 billion in February, the Commerce Department reported today in Washington. The median forecast of 72 economists surveyed by Bloomberg News projected it would widen to $47 billion...

Imports climbed 4.9 percent to $220.8 billion, the highest level since August 2008, from $210.4 billion. A jump in fuel prices and increasing demand for autos and computers led the gain.

A barrel of crude oil cost an average $93.76 in March, the most since September 2008, the Commerce Department said. Excluding petroleum, the trade gap shrank to $16.9 billion from $20 billion in February.

Exports increased 4.6 percent, the biggest gain since March 1994, to $172.7 billion. Increasing demand overseas for autos, chemicals and industrial machinery contributed to the advance. The gain also reflected record sales to customers in South and Central America, and the highest purchases from countries in the European Union since June 2008.

The UK also saw a wider trade deficit in March. Reuters reports:

The country's goods trade deficit widened more than expected in March, giving back some of the strong improvement seen in the first two months.

The Office for National Statistics said that the goods trade gap widened to 7.66 billion pounds from 6.99 billion in February, some way above the 7.25 billion pounds economists had expected.

But sterling rallied anyway on Wednesday after the Bank of England released its latest inflation forecasts. Bloomberg reports:

Bank of England Governor Mervyn King said that inflation remains “uncomfortably high,” and officials signaled they may need to raise interest rates later this year even as the economy struggles to build momentum.

“The recent pattern of revisions to the projections over the next year -- downward to growth and upward to inflation -- has continued,” King told reporters in London today. Inflation “remains uncomfortably high and well above the 2 percent target. And there is a good chance that, if utility prices rise further later in the year, inflation will reach 5 percent.”

The pound rose after the release of the bank’s forecasts, which showed that a quarter-point interest-rate increase by the end of the year may be needed to control inflation, which officials see “markedly higher” in the short-term than they did in February. The central bank kept its benchmark rate at a record low of 0.5 percent last week to aid economic growth.

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