Goods inflation surge reaches limits

Kia ora,

Welcome to Friday'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.

Today we lead with news there are signs the global rush up of producer prices may be exhausting itself.

But first, we start today with better-than-expected jobless claims data in the US. The number of Americans filing new claims for unemployment benefits fell to 256,000 last week, the lowest since March 2020 and well below market expectations of 300,000. The number of new filings remains well above pre-pandemic trends of about 210,000 but is certainly moving closer with 2.17 mln on benefits now and the pre-pandemic level was 1.8 mln. This is all happening as the number of job openings stays close to record high, as workers try to find new jobs with better pay, working conditions, and flexibility.

Meanwhile, the Philly Fed factory survey slipped back and by a bit more than was expected. It is still expanding in that key industrial region and at an above average level, but cost pressures are starting to weigh. Also, the skilled labour pressures are seeing firms commit to much higher capital expenditure to lessen its reliance on labour-intensive aspects of their operations.

Meanwhile, there was an unexpected jump in existing home sales reported for September. They rose a sharpish +7% to an annual rate of 6.3 mln units in the month to their highest level since January. The shortage of houses for sale is now getting acute, and prices are rising a very fast (for them) +13% year-on-year

In China, the logistics challenge of getting goods out of the country continues. But it is a uniquely Chinese problem, as freight rates show. Overall however, containerised shipping rates are falling now, only distorted by the ex-China rates. The Baltic Dry bulk freight rates are falling now too. But the logjams at US ports remain severe and are impacting goods availability for the upcoming holiday season. The US is considering deploying the National Guard to provide the resources to clear backlogs quicker at their end.

In South Korea, producer prices are still rising at an unusually strong pace - just like in most other countries - but the September data suggests that this trend is probably topping out and not getting worse.

Consumer sentiment in the EU remained broadly stable in October, according to the latest survey. It is still mildly negative, but that is 'good' from an historical perspective in the EU.

In Australia, it is becoming clearer that the sharp slowdown in China could feed a sustained drop in commodity prices and may in turn mean a period of well-below trend growth for Australia, with a sustained period of weak employment and wages growth. Then there could be fiscal implications that constrain the ability their government to offset the shock. But their exchange rate may cushion the impact - and they may be in a good position with commodities that support the global transition to a low carbon economy - meaning China's stumble may not hurt Australia as much as some think.

One mineral in hot demand right now is lithium carbonate. And mining giant Rio Tinto is forecasting a huge shortfall over the next 30 years.

And staying in Australia, the head of their tax office, the ATO, has said they are hunting for more than AU$33 bln in "missing tax" from various dodges, including AU$2.6 bln by large corporates, AU$12.5 billion by SMEs, and AU$8.4 bln from wealthy individuals.

The UST 10yr yield opens today up +4 bps at 1.68%. 

The price of gold has slipped -US$6 to US$1781/oz, probably the currency effect of a rebounding greenback.

And oil prices are sharply lower, down -US$1.50 to just under US$81.50/bbl in the US, while the international Brent price is also down, now just under US$83.50/bbl.

The Kiwi dollar opens today down -40 bps to 71.6 USc as commodity currencies take it on the chin today. Against the Australian dollar we are also a little softer at 95.7 AUc. Against the euro we are lower at 61.5 euro cents. That means our TWI-5 starts today at just on 75, but still well over the top of the 72-74 range of the past eleven months.

The bitcoin price has retreated somewhat today, down -5.1% from this time yesterday and is now at US$63,015. Volatility over the past 24 hours has been high at just over +/-3.5%.

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’ll do this again on Monday.