Inflation reaches 1974 levels in some key large markets

Kia ora, 

Welcome to Tuesday's Economy Watch where we follow the economic events and trends that affect New Zealand.

I'm David Chaston and this is the International edition from Interest.co.nz.

Today we lead with news inflation is getting a renewed push higher by more commodity price rises.

Inflation expectations reached 5.2% in the coming year in the US, according to the latest Fed survey. That is a new record high for this survey. In three years, these expectations are up to 4.0%. The same survey shows that median year-ahead home price change expectations decreased slightly to 5.9% in August from 6.0% in July, marking the third consecutive monthly decline.

The US monthly Budget outcome for August was a deficit if -US$171 bln and almost exactly as analysts had expected. That puts the full 12 month deficit at -US$2.8 tln and falling. This is -12.5% of US GDP. (Last year to August it was -15.0% of GDP. Pre-pandemic it was -4.5% of GDP. New Zealand is currently running a Crown deficit at about -3.6% of GDP.) 

In China, they are battling a raft of high-profile bankruptcies and stresses especially in their property development sector. Evergrande is the most prominent, but Soho has taken a heavy knock. And of course HNA is still working its way through its crisis, selling more assets. But more than property companies are involved with high-leverage stresses. Beijing's recent push to clean up much of these leverage stresses is probably justified; the only question is who suffers the losses.

Hong Kong reported its industrial production for Q2-2021 as a +5.6% gain in a year. But that only looks good because Q2-2020 was pandemic-affected. Compared to Q2-2019 there is no gain.

Japanese producer price index inflation has stayed high at +5.5% in August even if it was marginally lower than for July. But it is near its high since 2008.

India also reported an inflation rate, this one for CPI for August and it came in at 5.3%, marginally lower than expected and marginally lower than in July.

Germany reported wholesale prices for August and they jumped more than +12% in a year, the highest rise in 47 year after the first oil crisis back when inflation was untamed. The current rise is only a marginally lower rate.

And we should note that natural gas and coal prices re still rising worldwide even if oil prices aren't. And electricity prices are especially vulnerable in Europe because of the unreliability of renewable sources.

It is being reported that Australian Federal authorities have approved mass vaccinations at worksites, with the aim of vaccinating 1 mln people that way. But that would take the potential to only 73% vaxxed. They need another 3.5 mln to step up somehow if they are to be near a 90% vax rate.

The UST 10yr yield opens today at just over 1.33%, so a marginal slip at the start of Wall Street trading for the week. 

The price of gold has risen +US$5 today and now at US$1792/oz.

Oil prices have risen +50 USc overnight so in the US they are now just over US$70/bbl, while the international Brent price has risen to just over US$73/bbl.

The Kiwi dollar opens today at just under 71.1 USc and little-changed since this time yesterday. Against the Australian dollar we are -30 bps lower at just over 96.5 AUc. Against the euro we are little-changed at 60.2 euro cents. That means our TWI-5 starts today at just on 74.1, and also little-changed. We are still right at the top of the 72-74 range of the past ten months.

The bitcoin price has stayed down, now at US$44,442 and -3.1% lower than this time yesterday. Volatility in the past 24 hours has been high however at just under +/- 3.9%.

You can find links to the articles mentioned today in our show notes.

And get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston and we’ll do this again tomorrow.