Economy in Brief

Global monetary reflation is once again underway. The United States, the European Monetary Union, and the United Kingdom are all our participants; Japan is the country going its own way continuing to tighten and to restrict policy through disciplined and tightening monetary growth.

Reflation afoot Among the other three countries that are showing monetary stimulus, the U.K. is leading the way with the sterling M4 growth rate up to 7.6% at an annual rate over three months. The U.K. data lag other data in the table; they're not up to date through April; still, the acceleration is quite apparent over three months. Over 12 months, U.K. money growth is 3.5%, U.S. money growth is 4.4%, and the European Monetary Union money growth rate is 3.6%. The annual numbers still represent reflation increases in the annual growth rates compared to where they have been in the last three years, although none of the year-over-year growth rates really look like they are yet excessive compared to inflation targeting plans and likely GDP growth rates. However, this is definitely a transition to reflation. The question is whether it will be tempered at the right point.

EMU trends In the European Monetary Union, the two-year growth rate and the three-year growth rates for money are under 2% while the 12-month growth rate is up to 3.6%. Monetary Union growth rate of real money balances is up over three months at 2.3% at an annual rate and at 1.5% over 12 months. European credit growth is picking up, as well, with private credit growth running at a 2.5% annual rate over three months and at a 2.3% pace over 12 months; in real terms, private credit growth year-over-year, however, is only 0.2%.

U.S. trends In the United States, money growth is up to 6.5% at an annual rate over three months, money growth has progressed from averaging 0.2% over three years, to 2.7% over 2 years, and now to 4.4% over 12 months. U.S. nominal money growth clearly is accelerating. Looking at the growth of real balances in the U.S., the real money stock is growing at a 4.9% annual rate over three months and at 2.1% at an annual rate over 12 months.

U.K. trends In the United Kingdom, there is that 7.6% three-month growth rate that compares to 3.5% over 12 months and to slower growth over 2 and 3 years. Real balance money growth is at a 3.3% annual rate over three months; over 12 months, the U.K. growth rate for real money balances is flat! While the U.K. seems to be in a period of relatively sharp acceleration for money growth, it's not yet a long-lived period of expansion, and so that has not yet had much impact on actual inflation developments. But the jack-rabbit start to monetary acceleration is something to be wary of.

Japan trends In Japan, M2 plus CD's is falling at a 2% annual rate over three months, and rising at only a 0.4% in an annual rate over 12 months. That represents a lower growth rate than its two-year or three-year growth rate for the money stock. In terms of real money balances, over three months Japan's real balances are shrinking at a 3% annual rate, the same as the 12-month growth rate. Japan clearly is using monetary policy to squeeze inflation lower.

Oil Disinflation efforts have been helped everywhere by oil prices that are falling in dollar terms at a 48.3% annual rate over three months and falling at a 24.6% annual rate over 12 months.

Italian consumer and business confidence both rose in May. Consumer confidence rose sharply following a sharp drop in April; the main confidence level brings it back up above the level for March. Business confidence has been relatively stable; after a slight slouch in April, business confidence is back up and it too is slightly above its level for March. However, consumer confidence in Italy continues to be relatively firm relative to European standards. While consumer confidence in Germany is extremely low, Italy’s consumer confidence has a 70.7 percentile standing on data back to January 2006; Italian business confidence is much weaker with a 23.7 percentile standing. Italian consumers are feeling solidly but moderately confident while Italian businesses appear to be experiencing a great deal of anxiety. However, for Italian businesses while the level of anxiety may be high, a reading of 86.5 for confidence in May is the same as its average over the last 12 months.

The Past 12 Months Consumer confidence in Italy finds an improvement in the overall situation over the last 12 months, with a reading of -69 in May compared to -80 in April. Price trends over the last 12 months have a reading of 20.5 compared to 16 one month ago, showing that inflation pressures have increased. The household financial situation over the last 12 months was only slightly stronger than what it had been in April and continued at its 12-month average. On balance, the standing for these three readings over the last 12 months is between their 61st and 77th percentiles in terms of rankings; that means all of them are above their historic medians and moderately firm.

Currently The current situation finds household savings slightly better off in May compared to April, and the environment for making major purchases also improves to a reading of 33 compared to 31.5 in April. The major purchase reading is slightly above its 12-month average while the savings reading is slightly below. The ranking for the savings metric is in its lower 21-percentile while the ranking for the major purchase response is in its 66.8 percentile, a moderately positive and stable reading.

The Outlook Turning to the outlook for the next 12-months, the overall situation assessment improved to a -20 reading from -26 in April, putting it back at the same level it had in March and leaving it below its 12-month average as well as at a low rank-standing at its 10th percentile. That’s a far cry from what it had been over the past 12 months. Price trend eased after spiking a month ago and are below their March reading but above their 12-month average and with an 87.1 percentile standing. Inflation concerns clearly linger. Unemployment expectations in May are back to their 12-month average and nearly at their historic median on a ranking of 49.1%. Carrying the confidence readings higher, the household budget and planned purchase responses both rose in May and are above their respective 12-month averages with a budget ranking at its 97.4 percentile and a planned-purchase ranking at its 94.8 percentile. These are very strong reading components in the outlook measure.

The future savings reading stepped lower in May and is below its 12-month average, but it has a queue percentile standing in its 80.6 percentile and remains strong despite some monthly erosion.