Daily update
Daily update
- Inevitably markets reacted to US consumer price inflation headlines, but the details did matter. There is very strong evidence against inflation stickiness. Aside from rents and fictitious owners’ equivalent rents, there is deflation in almost every consumer price subcategory somewhere in the US. With collapsing clothing prices in Tampa or plunging communication prices in Chicago, it is difficult to argue that structural inflation stickiness exists when every key sector has deflation somewhere in the country.
- Food prices were falling in a third of US cities surveyed, as profit-led inflation retreats. Durable goods deflation is also significant, but high frequency purchases shape consumer (or voter) perceptions. Gasoline prices fell in some areas, but were generally higher—also a high frequency purchase, but gasoline inflation can reverse more quickly than food price inflation.
- The ECB meets with little to no expectation of an interest rate change—even as Eurozone real interest rates rise. We hear from ECB President Lagarde today, but markets are unlikely to shift from the idea of a summer rate cut.
- China’s producer prices remain mired in deflation, and consumer prices barely changed in March. China is not “exporting deflation”. However, stimulus measures to combat any signs of faltering domestic demand may boost global commodity demand.
