Sweden’s central bank joins RBA 2024 club
Total inflation in Sweden reached 3.1 percent in October, the fastest rate in more than a decade. The European Central Bank’s latest policy meeting emphasized that inflationary pressures are temporary, confirming the ECB’s status as one of the most deaf central banks in the world.
Hawks
At the same time, Bank of England Governor Andrew Bailey spoke about the prospect of resuming the monetary tightening cycle soon. He is concerned about the risk that inflation expectations will be embedded.
“A lot of people think we’re in the growth industry no matter what,” said Dr. Bailey. “We are in the price stability industry. It is not so much forward-looking guidance as a reminder of where we are.”
Joseph Capurso, head of international economics at the Commonwealth Bank, expects the BoE to start tightening in February.
On the other side of the Atlantic, a growing number of Fed officials have raised concerns about where inflation is heading and whether the central bank should be prepared to accelerate the slowdown in bond purchases and raise interest rates sooner. Minutes from the Fed’s policy meeting in November, which was released last week, showed that politicians were worried that high inflation could prove to be more persistent than first thought.
Inflation in the United States rose in October at its fastest annual rate in 31 years.
Bond futures price a 53 percent chance of a move in May 2022 from the Fed.
Bruined currency
Increased expectations that the Fed will raise interest rates faster than other central banks have boosted the US dollar, which jumped to a peak in July 2020 at 96,435 on the index measure, before easing to 96,774 when markets closed for Thanksgiving weekend.
The Australian dollar fell to a three-month low of US 71.6 ¢, ready to end the week 0.9 percent lower. It has slipped 4.7 percent so far this month, and if maintained, it would be the largest monthly decline since the pandemic began. It was traded for US71.7 ¢ at 12:00 AEDT on Friday.
The New Zealand dollar looked even more beaten at US68.41 ¢, after touching US68.33 ¢, the lowest since August. $ NZ has lost 2.4 percent this week after the Central Bank of New Zealand on Wednesday raised interest rates by only 25 basis points to 0.75 percent. Speculators for a long time had the currency hoped for half a percentage point to go to 1 percent.
It has plummeted 4.5 percent so far this month, and if maintained, it would also be the biggest monthly decline since covid-19 began.
High sales
Retail sales in Australia rose 4.9 percent in October to $ 31.1 billion, extending September’s already strong 1.7 percent bounce. The increase was almost double market forecasts of an increase of 2.5 percent, led by increases in clothing stores, department stores and restaurants.
“The jump brought sales within touching distance of its peak in May and is in line with our view that consumption will reverse almost the entire decline during the lockdown this quarter,” said Marcel Thieliant, a senior economist in Australia and New Zealand at Capital Economics.
He said that expenditure categories that are still well below the levels before Delta indicate that the recovery in consumption must continue.
The positive data will be a welcome boost for the economy, as household consumption accounts for about half of gross domestic product.
GDP data for the September quarter coming on Wednesday are expected to show a decline in the range of 2 to 4 percent. The CBA predicts a decline of 3.5 percent.