Macroeconomics: The Day Ahead for 14 September

Inflation data once again tops the bill via way of UK & Swedish CPI, UK and US PPI and Indian WPI, with Japan Private Machinery Orders to digest and Brazil’s Retail Sales ahead, and perhaps very poignantly the Business Roundtable publishes its quarterly CEO Economic Outlook Index. ECB policymakers dominate the roster of central bank speakers with Lane, Makhlouf and Villeroy, as the North American International Auto Show gets under way in Detroit, and the EU Commission outlines its latest proposals to ease energy crisis pressures. Meanwhile land freight and shipping rates are clearly trending lower, as bottlenecks ease, but the rail freight strike in the US underlines that supply chain issues remain a very real threat, as well as underlining that labour and social unrest in response to the cost of living crises across much of the world are only likely to intensify as we move through the autumn into winter. Following on from a little changed and still upbeat assessment from OPEC yesterday, the IEA publishes its monthly Oil Market Report today, with markets also looking to the weekly EIA crude and product inventories. Govt bond supply takes the shape of a smattering of German 22-yr accompanied by Portugal 4 & 10-yr. Yesterday’s rather violent sell-off in US equities, and sharp jump in short-dated US Treasury yields underlines how markets are still struggling to shake off the QE habits of FOMO and TINA, as well as the poor underlying profile of market liquidity, even if some may put a lot of the blame on typically poor seasonal trends during September.

** U.K. – August CPI & PPI **

The small miss relative to forecasts on CPI (0.5% m/m 9.9% y/y) was exclusively down to the fall in petrol prices, with the transport sub-index falling 1.3% m/m, but the fact is that CPI is still 8.0% above the BoE’s target. But with items such as household (1.3% m/m) and clothing (1.1% m/m) rebounding from July’s summer sales related discounting, recreation (0.9% m/m) and above all Food & Alcohol (1.5% m/m 13.1% y/y) still powering higher, the relief from lower petrol prices, particularly with the latest household energy hikes due in October, even if the govt measures will cushion some of this rise. PPI Input offered some prospect of relief with a drop of 1.2% m/m to pull the y/y rate back to 20.5% as non-energy commodity prices fell, and offset any impact from a weaker GBP, but core Input Prices were down only 0.1% m/m by comparison. But overall this does not change the inflation outlook, or the challenge facing the BoE, given the underlying sluggishness of the economy on the one hand, and on the other the peer pressure on it from the Fed and ECB to take a more aggressive stance.

** U.S.A. – August PPI **

PPI follows on from yesterday’s CPI, which underlined the simple observation that while inflation may have peaked, it’s descent back towards the Fed’s 2.0% target is going to be slow and probably painful, the latter in so far as it does allow the Fed to take its foot off the rates pedal. This is above all evident in the Cleveland Fed’s Trimmed Mean CPI measure (see chart) and the fact that Service price pressures (see chart) show no sign of easing, and are on balance probably still building. PPI is expected to see headline dip 0.1% m/m due to energy prices, pushing the y/y down to 8.8% from 9.8%, with core measures seen up 0.2%/0.3% m/m, also bearing down on y/y rates, though more modestly on ex-Food, Energy & Trade (5.5% from 5.8%). Without the hefty upward pressure from Housing in CPI, indeed given the downturn in the housing market perhaps seeing some downward pressure on construction materials, PPI is less likely to spring an upside surprise, even if a close eye needs to be kept on Services PPI, which has been rather sticky in recent months. Yesterday’s NFIB survey also highlighted a further drop in the proportion of companies planning to raise prices (see chart). But this will carry little weight in terms of the Fed’s determination to bring down consumer price inflation.