- New Zealand: International Trade (Feb)
- Korea: Consumer Survey Index (Mar); Philippines: Public Finance (Jan)
- Weekly: **Initial Claims Data Revisions Completed**
- Euro area: Flash Consumer Confidence Indicator (Mar)
- US: New Residential Sales (Feb)
- Belgium: Business Survey (Mar)
- Uruguay: GDP (Q4)
- more updates...
Economy in Brief
Kansas City Federal Reserve Factory Index Strengthens; Expectations Surge
The Kansas City Fed reported that its index of regional manufacturing sector business activity increased to 20 during March...
U.S. Initial Unemployment Insurance Claims Rise
Initial claims for unemployment insurance increased to 258,000 (-3.0% y/y) during the week ended March 18...
U.K. Retail Looks Less Bulletproof
For the most part, the assessments embodied in the March survey from the UK's CBI are being taken as being upbeat...
U.S. Existing Home Sales Fall to Five-Month Low; Inventory Remains Tight
Sales of existing single-family homes declined 3.7% (+5.4% y/y) to 5.480 million units (AR) during February...
U.S. FHFA House Price Index Momentum Diminishes
The FHFA U.S. house price index remained unchanged during January following a 0.4% December increase ...
Japan's Trade Trends Turn Sharply Higher
Japan has logged its largest current account surplus since April 2010...
by Robert Brusca May 20, 2016
The German PPI (ex-construction) fell by 0.2% in April, returning to its declining ways after a flat performance in March. PPI declines are still in force even as oil prices are rising strongly. Brent rose by 18% in March and by an additional 9.1% in April. Oil has switched from declining at 20%-plus annualized rates over six months and 12 months to advancing over three months at a 240.8% annualized rate.
PPI-CPI trends are less connected
The German CPI, also displayed in the table, shows some pick up already in train in terms of sequential pressures. The year-on-year German CPI is still up by only 0.1% and the ex-energy CPI is up a more robust 1.2%. While the PPI usually moves ahead of the CPI, the relationship between the core PPI and the core CPI for Germany is very loose. Still, the coming pressure in the PPI pipeline from oil seems a real threat despite current PPI and core PPI trends which show prices are still dropping.
The impact of the euro on the PPI
One possible threat to the restoration of PPI inflation is the impact of the euro. Euro exchange rate movements can offset or amplify oil-price pass-through effects. In addition, if the euro is pushed by movements in the dollar, particularly in the wake of a Fed interest rate move, we could find considerable push-back against rising oil-induced inflation pressures. A rising dollar will tend to depress global (dollar-priced) commodity prices as we have seen in the past. Ironically, as oil prices rise and give the Fed a sort of all-clear signal, the Fed prepares to hike rates boost the dollar and push oil and other commodity prices back down.
Global impact of Federal Reserve policy
The Fed seems oblivious to the global repercussions of its actions or is willing to treat them as de minimis. A growing cadre of Fed members is looking to hike rates as the Fed is preparing to implement its process to restore what it sees as normalcy in the U.S. interest rate structure. There is more at stake here than just the Fed deciding to raise rates as part of its domestic policymaking obligations. The global implications are clear. Once the Fed re-launches its rate hike effort, everything will be in play again. Then we will see if the linkages from Fed actions to exchange rates and through global commodity prices remain as strong as they were previously. That in turn will have implications for German inflation, the EMU exchange rate and for ECB policy as well as for policies pursued elsewhere. Based on rhetoric from the U.S., the game could be on soon. Is the Fed right in putting its own objective ahead of those of the global economy? Is the U.S. policy objective even correct? We are also on the road to finding that out. There is no knowing. There are opinions. And the process will be hit or miss in nature. In all likelihood, a bumpy rise lies ahead.