Are easing inflations signals a mirage?

Kia ora,

Welcome to Thursday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the international edition from Interest.co.nz.

And today we lead with news central bankers are coming to realise they are just getting started in their inflation fight, and we are far from past the worst.

But first, US mortgage applications rose strongly last week from the prior week in an unusual burst. That still leaves them -37% lower than year-ago levels. But mortgage interest rates were little-changed with their 30yr fixed still at 6.18% plus points.

In late-released data yesterday, the American appetite for consumer credit slowed unexpectedly in December, rising a tiny +US$12 mln in the month, when a small +US$25 bln was expected. Their appetite for consumer credit is unusually restrained at present, perhaps because interest rates rises are making it unattractive. This comes despite a key optimism index improving sharply (well, getting a lot less pessimistic).

Fed officials continue to point out the upward pressure the strong US labour market is putting on inflation. One key voice, the NY Fed's John William, noted overnight that  policy interest rates were “barely into restrictive” territory at current levels. His comments are consistent with what Powell and others are saying.

The Reserve Bank of India raised its key repo rate by +25 bps to 6.5% during its February meeting yesterday. This was their sixth rate hike in a row, and comes amid signs that inflation is easing mainly because of food prices. It was a rate increase that markets expected.

The Turkish economy is facing new pressures from the earthquakes in the east of the country. Inflation had been easing recently, down to 'just' +58% pa but that 'progress' is now at risk. Their exchange rate has worsened to its worst ever. They just don't need these financial pressures on top of their struggling humanitarian disaster response.

In Australia, cost pressures, especially in their construction industry, are becoming intense. Pressure is on the renege on fixed price contracts. Major material suppliers leading the effort to raise prices across the board. Essentially, there is little evidence the RBA’s tightening cycle has dampened demand, and although they think they have been "aggressive", probably much more will be needed in Australia to defeat their growing inflation problem.

Ahead tomorrow, January inflation data from the EU/Germany and China will inform the view about whether any progress is evident globally.

The UST 10yr yield starts today at 3.68% and up +6 bps from this time yesterday. 

The price of gold will open today at US$1875/oz and down just -US$1 from this time yesterday.

And oil prices start today up +US$1 at under US$78/bbl in the US. The international Brent price is now just under US$84/bbl.

The Kiwi dollar is little-changed at just over 63.2 USc. Against the Australian dollar however we are lower at just under 91 AUc. Against the euro we are lower at 58.8 euro cents. That all means our TWI-5 starts today at 70.4 and soft from yesterday.

The bitcoin price is now at US$22,914 and again, very little-changed from this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.7%.

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 will do this again tomorrow.