Period: 8 – 14 May 2021
Top news story: The big news is still the same: Inflation has started out completely. By way of example, we will mention the three most characteristic markets (data on Thursday, all given relative prices).
For example, there was a slight backsliding on iron ore on Friday:
There is an important point to be made. For what reason are these markets growing the most? Because the surplus money can be packed into these goods. In other words, market participants begin to make insurance savings of necessary goods and try to save their capital from rapid depreciation.
Of course, such policies increase the cost of using the relevant products and sharply increase price volatility, i.e. the risks that will inevitably arise in logistics and insurance. But this is a typical situation under conditions of long-term inflation and nothing can be done about it. The US monetary authorities have for decades sought to avoid deflation – which, based on the experience of the 1930s, they were very afraid of – and now they have what they wanted. As expected, nothing good.
As a result, the American consumer satisfaction index fell sharply. It was the lowest in 15 years. This is not only a sign of the economy’s weakness, but also a guarantee of further savings growth and, thus, a fall in aggregate demand. That is, GDP.
American Consumer Satisfaction Index. Source: University of Michigan, Bloomberg
Saudi Arabia’s GDP returned to negative in the first quarter (-0,1% per quarter), with a slight decline in the annual decline, despite a weak base last year:
Saudi Arabia GDP Annual Growth Rate
The same situation in UK, -1,5% per quarter, and the recession continues:
United Kingdom GDP Annual Growth Rate
In Brazil, economic activity reached monthly negative values in March:
Brazil IBC-Br Economic Activity Index
Japan Economy Watchers Index in Japan suddenly sharply deteriorated in April:
Japan Economy Watchers Survey
Britain’s trade deficit is close to record highs, indicating the inevitability of new emissions and thus the continuation of inflationary processes:
United Kingdom Goods Trade Balance
The same figure in India:
India Balance of Trade
Inflation expectations in the United States repeated the record peak of 2013 (+3,4%):
CPI (Consumer Price Index) USA +0,8% per month, peak June 2009, and +4,2% per year, since September 2008:
United States Inflation Rate
Without food and fuel – root index, without high-volatility components – +0.9% per month, maximum from April 1982, and 3,0% per year, the highest from January 1996:
US PPI (Producer Price Index) +0,6% per month, mostly for services, and 6,2% per year – the highest since 2008:
However, it must be borne in mind that PPI in the United States is only considered for final-demand goods, that is, after passing the money through the entire supply chain. If we consider all intermediate goods – price increases that will eventually reach final demand – the result is much worse: +17,3% per year, just +0,1% from the peak of 2008, which in turn has peaked since 1974.
US import prices + 10.6% per year – the highest since 2011:
United States Import Prices
And for export (+ 14.4%) – the highest for all 38 years of observation:
United States Export Prices
CPI Spain +2,2% per year, at a maximum of 2,5 years.
CPI Brazil + 6,8% per year, the highest since 2016.
China’s PPI is at its highest since 2017 and approaching a 13-year peak:
PPI Canada 1,7% per month and 14,2% per year – record since 1980:
Retail prices in Germany at 2-year high, + 2.0%.
And wholesale prices reached a 10-year high (+ 7.2% per year):
Germany Wholesale Prices
A case in point is employment in the United States, which fell sharply last week. No May data, of course, but there are proxy indicators. Capacity utilization slumped in April: 74,9% with forecasts of 75,0% and March 74,4%. Initial jobless claims amounted to 473,000 against the forecast of 490,000 and 507,000, revised from 498,000 a week ago. It should be noted that these indicators are being revised to a large extent and therefore need to be treated with caution. So we’ll be watching the situation.
Summary: Inflationary pressures are on the rise and trade deficits in developed countries are expected to continue to rise. At the same time, the Reuters survey shows that, from an economist’s point of view, the threshold for the United States Federal Reserve’s core inflation concern is 2,8%. And then, for a while, the monetary authorities will tolerate this level.
Given that, according to the current methods, real inflation rates are desperately low, in reality prices will rise much higher. This will further increase the dependence of the economy in general, and households in particular, on stimulus measures, namely, emissions. With further price increases imminent.
In general, both the United States and the world economy have entered the trajectory of growing inflation, which means that the collapse of financial markets is already somewhere close.
We wish all subscribers a happy weekend and a successful work week!