Inflation's rise takes center stage

Kia ora,

Welcome to Friday'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 American inflation is now at 5% in a new sudden jump.

But first, last week's jobless claims came in very much as expected and very similar to the level of the prior week. There are now 3.3 mln on these programs and a -5% reduction in one week. They still have some way to go to get back to pre-pandemic levels but most of the progress to that goal has been made.

The American CPI inflation rate touched 5% in May and above the expected +4.7% and well above the April level of 4.2%. That is a 13 year high. This result was essentially driven by the energy sector, but without that, the result "less food and energy" was still a 3.8% rise, and a good part of that was caused by their booming used car market. Because of these odd drivers, it is easy to see why policy makers might still look though these results.

The Fed is meeting next week and how they view the inflation track will likely be a key discussion topic.

The US Federal Government reported a May deficit of -US$132 bln and far less than the -US$399 bln recorded in May 2020. For the full twelve months to May, the federal deficit is -US$3.3 tln or -15% of US GDP. External Federal debt is now US$22 tln or about one times as much as the annual US economic output (GDP).

But away from the public sector, American household wealth is surging and their net worth is now +US$137 tln, or 6½ times as much as the annual US economic output (GDP).

China issued data for its may level of new yuan loans in its 'social financing' release. These came in slightly above the expected level of +¥1.5 tln and very similar to the April loan growth amount. We are inured to these fast debt expansions in China these days. But local policy makers are nervous.

At the latest ECB meeting, they left all their current policy positions unchanged, continuing their QE at the rate of €20 bln per month. There are no tapering signals in this dovish review.

In Australia, their June survey of inflation expectations rose from 3.5% pa in May to 4.4% in June and its highest since February 2020.. In contrast, wage growth expectations remain unusually low.

Back in the US, their USDA has issued its latest WASDE agricultural review of world food supply and it notes that world corn stocks are falling fast, which will likely give food prices another jolt higher. They are also reporting lower wheat and rice stocks. For dairy products, they raise their estimate of US prices on rising exports despite noting good rises in US production.

The bond markets are spooked for some reason. The UST 10yr yield starts today down another -8 bps at 1.45%. 

The price of gold starts today at US$1895/oz, and up +US$2 overnight.

Oil prices start today a little firmer at just over US$70/bbl in the US, while the international Brent price is just over US$72/bbl. But these are now levels we haven't seen since May 2019. Just over a year ago this price was US$18/bbl.

The Kiwi dollar opens today little-changed at just under 72 USc. Against the Australian dollar we have fallen to just under 92.8 AUc. Against the euro we are unchanged at 59.1 euro cents. That means our TWI-5 starts today at 73.5 and about where it was this time last week.

The bitcoin price is now at US$36,499 and back up +14% from this time yesterday. Volatility in the past 24 hours is still high at +/- 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 on Monday.