The Bank of Japan will continue to persist with “powerful monetary easing” to nurture positive inflation developments, BoJ Governor Haruhiko Kuroda said in Zurich on Monday.
“Going forward, with the output gap improving steadily, firms’ stance is likely to gradually shift toward raising wages and prices,” Kuroda said in a lecture at the University of Zurich. “If further price rises come to be widespread, inflation expectations are likely to rise steadily.”
PG View: The BoJ has been saying the same thing for more than 20-years . . .
A spike in energy prices in the aftermath of Hurricane Harvey boosted the U.S. cost of living by the most since January, while inflation excluding food and fuel was below estimates, a Labor Department report showed Friday.
While economists expected an overall pickup in price gains in the aftermath of Hurricanes Harvey — energy costs rose by the most since June 2009 — the details suggest any broader acceleration in U.S. inflation may need more time to gain traction.
PG View: Should take at least a little wind out of December rate hike expectation sails.
Reuters/ Jonathan Spicer & Stephanie Kelly/09-05-17
U.S. inflation is falling “well short” of target so the Federal Reserve should be cautious about raising interest rates any further until it is confident that prices are headed higher, an influential Fed policymaker said on Tuesday.
In a dovish speech in the face of months of weak inflation readings, Fed Governor Lael Brainard said the U.S. central bank should go so far as to make it clear it is comfortable pushing prices modestly above the Fed’s 2-percent target.
“We should be cautious about tightening policy further until we are confident inflation is on track to achieve our target,” Brainard, a permanent voter on monetary policy, said in a speech in New York.
Bloomberg/Jeanna Smialek & Carolynn Look/08-21-17
As the world’s top central bankers gather in Wyoming this week, their relief about a stronger global economy will be tempered by a growing unease that inflation remains inexplicably low.
The most important market news of the day.
Federal Reserve Chair Janet Yellen and European Central Bank President Mario Draghi will be among the officials addressing this year’s installment of the annual conference hosted by the Kansas City Fed. The summit, held at a Jackson Hole mountain retreat, comes as central banks in advanced economies creep toward the policy exit after years of unprecedented easing, even with outlooks are clouded by stubbornly tepid inflation.
Prices have been slow to pick up despite solid growth and falling unemployment, suggesting that the long-observed relationship between inflation and labor-market slack might have frayed. That puzzle will likely surface as the conference debates this year’s theme of “Fostering a Dynamic Global Economy” against the backdrop of the Grand Teton mountains.
“Inflation has been the big question mark, both here and abroad,” said Michelle Meyer, head of U.S. economics at Bank of America Corp. in New York.
U.S. producer prices unexpectedly fell in July, recording their biggest drop in nearly a year and pointing to a further moderation in inflation that could delay a Federal Reserve interest rate increase.
…Though the link between the PPI and the consumer price index has weakened, last month’s drop in producer prices could worry Fed officials who have long argued that the moderation in inflation was temporary.
Fed Chair Janet Yellen told lawmakers last month that “some special factors” were partly responsible for the low inflation readings. Inflation, which has remained below the U.S. central bank’s 2 percent target for five years, is being watched for clues on the timing of the next Fed interest rate increase.
Wage and CPI inflation, even core inflation, has surprised to the downside four consecutive months. If a recession hits, and that is just a matter of time, outright price deflation is likely.
…Gold tends to do well in deflation, stagflation, and times of credit stress. More importantly, gold does well when confidence in central banks is on the wane.
…The price of gold closely follows faith in central banks. If you think faith in central banks will again come into widespread question, then add to your gold stash.
Is deflation on deck? Yes, asset deflation, a very destructive kind of deflation.
The world as we know it, will be no longer. The balance of power on a global scale will shift. All in the next decade.
…”Oil demand will peak 2021-2020 and will go down 100 million barrels, to 70 million barrels within 10 years. And what that means, the new equilibrium price is going to be $25, and if you produce oil and you can’t compete at $25, essentially you are holding stranded assets,” Seba said.
“At $25 a barrel, that means deep-water, sands, shell oil, fields, most are going to be stranded, and also all the refineries and pipelines associated with these expensive oils are also going to be stranded. And that is going to reshape worldwide oil, geopolitics and so on.”
Oil fell a sixth day as the ramp-up of U.S. drilling signaled further production gains in the world’s biggest crude-consuming nation.
Futures extended last week’s 6.7 percent decline in New York. U.S. explorers added 5 rigs last week to cap the longest stretch of gains since 2011, Baker Hughes Inc. data show. An OPEC committee concluded that a six-month renewal of an output-cut deal is needed, delegates with knowledge of the matter said. Money managers boosted wagers that U.S. oil futures would increase in the week to April 18, government data showed. Oil rose earlier along with global equities while the dollar weakened after the first round of the French presidential election.
How’s this for Grade 1 central bank hubris?
Peter Praet, the ECB’s chief economist said in a recent interview that, “Since the crisis, we have had serious concerns about deflationary risks on several occasions in the euro area, but now we can say they have disappeared.”
Really? Has he seen the chart above, which shows core CPI in the Eurozone heading sharply lower and now approaching its all-time low seen at the start of 2015!
…Similarly, Janet Yellen was quoted saying the Fed is “doing pretty well” in meeting its congressionally mandated goals of low and stable inflation and a full-strength labor market. It’s this sort of comment that has led Marc Faber to want to short central bankers, the only way being to buy gold. The increasing volume of central bank hubris may even explain the recent breakout of gold to the upside!
03-Nov (CNBC) — NBC used to air a fast-paced television game show called “Deal or No Deal.”
The oil markets have been playing a version of that with OPEC and certain non-OPEC members who, in a desperate attempt to save their economies, are trying to forge a deal on limiting oil production.
As is usually the case, when Saudi Arabia speaks, the oil market listens, and, in a departure from their previous position of engaging in a bare-knuckle brawl for global market share, they have been leading the charge to reign in oil production.
Oil prices had rallied on their attempts, recently nearing the $52 level for West Texas Intermediate.On Thursday WTI was trading at about $45 per barrel.
… Because of all this, WTI oil prices are set to trade back down to the mid-$30, at least, putting the February low of $26.05 back in-play, into year-end.
2017 is looking like another challenging year for the energy industry.
PG View: That could translate into another challenging year for inflation expectations as well . . .
02-Nov (Reuters, via CNBC) — Oil prices tumbled 3 percent on Wednesday after a record weekly build in U.S. crude stocks added to worries of all-time highs in OPEC production that suggested little could be done to rein in a global glut.
The U.S. government’s Energy Information Administration (EIA) said crude inventories rose by 14.4 million barrels for the week ended Oct. 28, versus analysts’ expectations for a build of 1 million barrels. It was the biggest ever rise in U.S. crude stocks in a week, overwriting a 2012 record.
“This is very, very, very bearish. Nothing else in the report matters,” said James L. Williams, energy economist at WTRG Economics in London, Arkansas.
PG View: If energy prices resume their downtrend, it’s going to derail any hope of hotter inflation into year-end…and possibly the rate hike as well. More production freeze/cut rumors in 3, 2, 1 . . .
01-Jun (Reuters) — Japanese Prime Minister Shinzo Abe announced on Wednesday his widely expected decision to delay a scheduled sales tax increase by two-and-a-half years, putting his plans for fiscal reforms on the back burner due to growing signs of weakness in the economy.
While the decision may help Abe win votes at an upper house election on July 10, it could fan doubts about his plans to curb Japan’s huge public debt and fund ballooning social welfare costs of a fast-ageing population.
Mindful of opposition criticism that the delay is a sign his “Abenomics” stimulus policies have failed to spur growth, Abe justified the decision, saying it was needed to forestall risks posed by external factors – notably slowing Chinese growth.
“Abenomics has been steadily producing results, but the global economic environment has changed unexpectedly quickly in the past year. The biggest risk is the slowdown in emerging economies,” Abe told a news conference.
“Faced with global risks, we must fully reignite the engine of Abenomics and speed up efforts to escape deflation,” he said.
PG View: Didn’t the OECD just say fiscal reforms are exactly what is needed?
Harmonised consumer prices in Europe’s largest economy are expected to fall 0.1 per cent in April, the country’s statistics office, Destatis said in initial estimates.
That’s lower than economist expectations of a flat reading of 0 per cent this month and shows Germany is slipping back into negative price territory having been gripped by “lowflation” since 2015.
…Germans have a well-known aversion to high inflation (something to do with this), but rising prices in Europe’s biggest economy are vital to help rebalance the eurozone and ease the pressure on struggling southern economies – most of which are trapped in deflation within mounting debt burdens.
Earlier today, European Central Bank chief Mario Draghi told German tabloid Bild that persistently low inflation meant monetary policy – despite record low interest rates – remained appropriate for the struggling eurozone.
01-Apr (CNBC) — A tightening labor market and rising inflation against a backdrop of slowing overall growth are painting an increasingly stagflationary picture for the U.S. economy.
Stagflation, or conditions in which costs are rising but growth is not, last was seen in the 1970s, before then-Fed Chair Paul Volcker had to push the economy into recession to slay the inflation dragon.
Now, with a variety of factors coming together to show inflationary-deflationary cross currents, Wall Street is bracing for another battle.
“During the last year, as the economy has returned closer to full employment, the core cost structure of the U.S. economy has risen more aggressively and more broadly than ever before in this recovery,” Jim Paulsen, chief investment strategist and economist at Wells Capital Management, said in a report for clients. “While the U.S. is not facing runaway inflation, the concept of stagflation (i.e., rising inflation rates combined with slower real economic activity) has become much more noticeable.”
PG View: When stagflation dominated during the 1970, gold rose by nearly 16 times. See Black Swans, Yellow Gold
15-Mar (FT) — Monetary policymakers are on the defensive. After a decade in which central banks steered the global economy out of crisis, faith in their powers is waning. In the past week, the European Central Bank and Bank of Japan governors have fought back against the sceptics, underlining their resolve to defeat deflation and revive anaemic growth. Mario Draghi and Haruhiko Kuroda are right to contend that their policies are having an effect. Yet as they delve ever deeper in the toolbox of unorthodox policy, the risks of unintended consequences are increasing, and the need for governments to play their part is ever more apparent.
It remains a caricature to paint central banks as impotent. Eurozone inflation may be close to zero, but had the ECB not acted, Mr Draghi argues, the counterfactual would have been “disastrous deflation”. He has also shown that there is still plenty of scope for central banks to innovate by extending their asset-purchase programmes to riskier assets and finding ways to support banks that increase lending to the real economy. More radical tools, such as “helicopter money” — printing money to finance government spending — are as yet a matter of academic discussion, but are not ruled out.
Nonetheless, the concern that central banks are losing their grip has some foundation. Monetary policy as it is now practised clearly has some unpredictable and uncertain effects, especially when it comes to recent experiments with negative interest rates. Since the BoJ cut rates below zero in January, it has seen the yen appreciate, bank shares fall and financial unions drop demands for wage rises — counterintuitive developments that make it understandably cautious about going any further for the time being.
This is not an argument for central bank inaction. Monetary policymakers battling deflation can and should do more, focusing first on quantitative easing, where they have more evidence to assess the likely effects.
29-Feb (Bloomberg) — The inflation picture in the euro area deteriorated in February, giving European Central Bank policy makers more bad news to digest just a week before their next meeting.
Consumer prices in the 19-nation bloc declined to minus 0.2 percent from a positive reading of 0.3 percent in January, according to data published Monday. Core inflation, which strips out volatile elements such as food and energy, was at 0.7 percent, down from 1 percent in the prior month. Those are the worst readings since February and April of last year, respectively.
The deteriorating inflation backdrop comes just over a week before ECB policy makers led by President Mario Draghi gather in Frankfurt for a meeting at which they’ve said they’ll review if their current stimulus is enough. Price growth has fallen short of the central bank’s goal of just below 2 percent for three years amid a drop in oil prices, pushing the central bank to take more and more aggressive action in response.
“Not only headline but also core inflation is much lower than the ECB has been projecting — it is not just energy, it is a wider problem reflecting second round effects and weak demand,” said Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam. “This will provide the ECB with an extra push to deliver more aggressive easing than expected at its March meeting.”
PG View: The deteriorating inflation picture ups the odds for more ECB action in March, which has pushed the euro to a 3-year low against the dollar today.
28-Jan (Bloomberg) — German consumer prices fell at the fastest monthly pace in a year in January as plummeting oil prices and weakness in emerging-market economies postpone a long hoped-for pickup in inflation.
Prices declined 0.9 percent from December, the Federal Statistics Office in Wiesbaden said on Thursday. That’s the largest decline since January 2015. Even so, the annual inflation rate rose to 0.4 percent from 0.2 percent the prior month, in line with the median estimate in a Bloomberg survey.
While slightly faster inflation may seem like welcome news to the European Central Bank which is trying to fuel price pressures in the 19-nation euro area, the acceleration masks a deteriorating outlook. With a drop in oil prices of almost 25 percent since early December weighing on inflation expectations, ECB President Mario Draghi has signaled more stimulus may come as early as March.
20-Jan (Reuters) — U.S. oil prices crashed below $27 dollars a barrel on Wednesday for the first time since 2003, caught in a broad slump across world financial markets with traders also fearful that the crude supply glut could last longer.
Oil prices have slid more than 25 percent so far this year, piling more pain on oil drillers and producing nations alike, yet they keep pumping more oil into an oversupplied market.
U.S. crude for February delivery, which expires at the end of the day, slid $2.05, or 7.2 percent to $26.41 at 2:05 p.m. EST (1902 GMT).
Brent futures for March delivery fell 98 cents, or 3.3 percent to $27.80 a barrel. It touched a new contract low of $27.10.
The International Energy Agency warned that the world could “drown in oversupply” of oil in 2016, with the lifting of western sanctions against Iran allowing that country to add its exports to the global glut.
15-Jan (BBC) — Oil prices have fallen below $30 a barrel for the second time this week.
It comes as concern grows that Iran could restart oil exports flooding a market already under intense pressure from global oversupply and weak demand.
Brent crude fell more than 4.5% to $29.46 and US West Texas intermediate oil fell to $29.47
Iran could restart exports if the International Atomic Energy Agency (IAEA) reports it has complied with measures to curb its nuclear programme.
The IAEA could publish its report as early as Friday, following a meeting in Vienna.
Iran has the fourth largest proven oil reserves in the world, according to the US Energy Information Agency and any additional oil would add to the 1 million barrels a day of over supply that has led to a more than 70% collapse in oil prices since the middle of 2014.
12-Jan (Platts) — The premium of gold to platinum has moved to its largest level on record, at over $250/oz, as the metal fails to keep up with large gains made by gold this year.
Whereas gold has added over $50/oz in 2016 to date on safe haven buying at over $1,100/oz this week, soft China data, persistent yuan depreciation and weak stock markets have all helped platinum lose around the same amount this year, to $845/oz as of 1100 GMT Tuesday.
2016 has been even worse for palladium, down around 15% year to date, trading around $450/oz Tuesday morning, its lowest level in over five years, as concerns over China continue to dominate prices for industrial and precious group metals.
Palladium’s discount to gold is the largest since 2013, at $650/oz.
PG View: With the gold/silver ration still trading just below 80 — and not that far from the record high of 83.78 from 2008 — its pretty evident that gold is outperforming on its safe-haven appeal. That is likely to continue for some time to come.
11-Jan (WSJ) — Crude-oil prices plunged more than 5% on Monday to trade near $30 a barrel, making the specter of bankruptcy ever more likely for a significant chunk of the U.S. oil industry.
Three major investment banks— Morgan Stanley, Goldman Sachs Group Inc. and Citigroup Inc. —now expect the price of oil to crash through the $30 threshold and into $20 territory in short order as a result of China’s slowdown, the U.S. dollar’s appreciation and the fact that drillers from Houston to Riyadh won’t quit pumping despite the oil glut.
As many as a third of American oil-and-gas producers could tip toward bankruptcy and restructuring by mid-2017, according to Wolfe Research. Survival, for some, would be possible if oil rebounded to at least $50, according to analysts. The benchmark price of U.S. crude settled at $31.41 a barrel, setting a 12-year low.
More than 30 small companies that collectively owe in excess of $13 billion have already filed for bankruptcy protection so far during this downturn, according to law firm Haynes & Boone.
11-Jan (Reuters) — Oil prices fell for a sixth session to trade at almost 12-year lows on Monday as concerns about China’s economic slowdown, reflected in a renewed slide in its stock markets, weighed on the outlook for demand this year.
Traders increased bets against any near-term recovery in the oil price and Brent crude futures were down by 63 cents at $32.92 a barrel by 1200 GMT, off 15 percent in a week. U.S. West Texas Intermediate (WTI) crude futures fell 48 cents to $32.68.
Speculators increased their net short positions to a record high in the week to last Tuesday, data showed on Friday, in a sign that they are losing faith in a price rise any time soon.
21-Dec (Telegraph) — One of the Bank of England’s most hawkish policymakers has signalled that he is unlikely to vote for higher interest rates in the near future.
Martin Weale said a surprise “pause in wage growth” and further falls in commodity prices made the need for tighter policy “slightly less immediate”.
“The factors pushing down on inflation have become a bit more prolonged,” he said in an interview with the Telegraph.
Mr Weale said the Monetary Policy Committee (MPC) that sets interest rates had more “breathing space” to assess how these factors would affect inflation, as he noted that there had been “very little wage growth” over the past six months.
“I initially thought that the weak wage growth was a wobble that represented stray numbers that you get once or twice from time to time. There has plainly been something more to it than that,” he said.
02-Dec (Reuters) — Oil prices tumbled more than 4 percent on Wednesday as surging U.S. stockpiles and a rallying dollar prompted traders to dump crude contracts amid signs the world’s largest oil producers will not cut production when they meet this week.
Warmer-than-usual weather in the Northeastern United States, a major market for heating oil, also weighed on the petroleum complex.
U.S. crude’s West Texas Intermediate (WTI) futures hit contract lows after government data showed a 10th straight week in crude builds.
PG View: Deflationary pressures continue to mount, even as Yellen sets the stage for the central bank’s first rate hike in 114-months.
19-Nov (Bloomberg) — ECB President Mario Draghi said officials would “re-examine” their policy stance on Dec. 3, when new forecasts for inflation and economic growth will also be released. In recent weeks, governors have sent mixed signals over the need for further easing for a currency bloc that is showing domestic resilience but which is exposed to a global slowdown spurred by China’s cooling economy. The accounts showed officials saw uncertainty surrounding China as still “particularly high.”
The euro pared gains after the account was published. It traded at $1.0695, up 0.3 percent, at 1:45 p.m. Frankfurt time.
Praet’s presentation mentioned “downside risks to the September baseline scenario, notably as regards the inflation outlook,” according to the accounts. The ECB that month projected prices in the euro area will rise 1.1 percent in 2016 and 1.7 percent in 2017. The goal is medium-term inflation of just under 2 percent, a level not seen since early 2013.
“Such a downward revision to the inflation outlook was seen as potentially worrisome, especially when coupled with less robust evidence of a sustained turning point in underlying inflation,” the authors wrote. There is a risk that consumer prices, “after a pick-up around the turn of the year owing to oil price-related base effects, could fall back to relatively low levels in early 2016.”
16-Nov (Bloomberg) — The European Central Bank sees a risk that investors and consumers will lose faith in policy makers’ projections for reviving inflation, Executive Board member Peter Praet said.
“It’s key for a central bank to keep inflation expectations anchored, especially in a period of slack in the economy, and we have some signals that these inflation expectations are still fragile,” Praet, 66, said in a Bloomberg interview in Frankfurt on Monday. “There are risks and this is why we’re considering further action. A possible de-anchoring of inflation expectations together with a lot of slack is a dangerous cocktail.”
Eight months into an unprecedented 1.1 trillion-euro ($1.2 trillion) bond-buying program, the ECB is considering stepping up stimulus as the euro area’s sluggish recovery fails to lift consumer prices clear of the deflation danger zone. While some policy makers have said there’s little need for more action just yet, Praet argued that the Frankfurt-based institution is concerned about persistent miscalculation of how long it’ll take to return inflation toward its goal.
“Mechanically updated projections suggest that the risk is present that we may again have to extend this horizon,” he said. “And even if it’s slightly, it’s a repetition of a past pattern. And then you go into the question of credibility of monetary policy.”
12-Nov (CNBC) — The head of the European Central Bank has paved the way for further monetary easing in December, warning that signs of a sustained turnaround in core inflation had weakened.
Addressing the European parliament’s Economic and Monetary Affairs Committee Thursday, Mario Draghi said that “downside risks stemming from global growth and trade are clearly visible” in the euro zone.
Although a recovery in the 19-country single currency region was “progressing moderately” there were risks posed by the area’s “inflation dynamics.”
“Inflation dynamics have somewhat weakened, mainly due to lower oil prices and the delayed effects of the stronger euro exchange rate seen earlier in the year. In addition, price pressures – such as from producer prices – remain very subdued,” he said.
Draghi warned that from today’s perspective, “this suggests that a sustained normalization of inflation could take longer than we anticipated in March when we first appraised the overall impact of our measures.”
PG View: Interestingly Draghi specifically noted that core inflation has “somewhat weakened.” However, that indicator has been trending higher since April. That has led many to believe that Draghi is aware of weakness not yet reflected in the data, which is heightening expectations that QE will indeed be expanded in December.
11-Nov (USAGOLD) — The St. Louis Fed announced that their new Price Pressures Measure was now available in FRED.
Here’s how they describe the series:
This series measures the probability that the expected personal consumption expenditures price index (PCEPI) inflation rate (12-month percent changes) over the next 12 months will exceed 2.5 percent.
A more detailed description notes the following:
Policymakers usually want to know—to the extent possible—the probability that inflation over the next four or eight quarters will exceed the inflation target. Or, if inflation is very low, they may also want to know the probability that inflation will fall below zero (deflation).2 Specifically, if Fed policymakers perceive a relatively high probability that inflation will rise above the 2 percent target rate over the next year, then the probability that the FOMC will raise the federal funds target rate likely exceeds the probability that the FOMC will reduce the federal funds target rate. Thus, assessing inflation’s likely path over some horizon matters to policymakers and those in financial markets.
So here’s the new series in all of its glory . . .
I suppose one might argue that the uptick in probability to 0.00499 in October, from 0.00044 in September denotes a significant shift in inflation expectations. Is it enough to warrant a rate hike in December?
I sincerely doubt it.
29=Oct (ZeroHedge) — Yesterday we reported on something that has never happened before in Europe: more than half of European sovereign issuers just saw the yield on their 2 Year Notes trade not only below zero, but hit never before seen negative yields.
As we further noted, this brought back memories of a post we did back in January when JPM was shocked to find that “in the aftermath of the ECB’s NIRP policy, and subsequently QE, an unprecedented €1.4 trillion in European debt with a maturity of more than 1 year traded down to subzero, as in negative, yields.”
Overnight BofA’s Barnaby Martin decided to break down the most recent total and found something staggering: that €1.4 trillion number is a long gone memory and has been replaced with a “negative-yielding wonderland.” To wit:
The easing bias of central banks in Europe over the last week has exacerbated the shortage of positive-yielding assets. Negative-yielding government debt in the Eurozone has jumped from €2tr to €2.6tr over the last week and now stands at a record high. The previous peak in negative-yielding government debt was €2.4tr, reached in April this year prior to the “Bundshock”.
This was the be expected, as now every single activist central-bank is exporting deflation with a passion. The result is that negative yields have led to even more… deflation.
PG View: One sure fire way to make the U.S. an even bigger target for all that exported deflation is to widen the policy divergence in December. Another reason why it won’t happen . . .