Central banks’ battle with inflation enters new phase of ‘pain’ [FT]
UK and Australia are miles behind the curve in dealing with inflation. The Old Lady (BOE) finally panicked and started to address the situation.
Getting inflation down to 2% for all countries is going to mean a global recession. They could change that number though!
PPI globally is showing us that any energy, commodity or supply chain shocks have already passed through the statistics. Headline inflation less than core inflation. Haven't seen that for a long time.
The big problem is full employment globally. Ok, so many well-off left the work force during or post pandemic, flush with newly printed cash and good luck to them. Others are having to work multiple jobs to make ends meet. The gig economy skews the stats which doesn't help in understanding the problem.
J.Powell said in a presser 6 months ago that employment was stubbornly full but maybe something has changed, and it's the new norm. Many missed this and I think, for once, he's exactly correct.
Markets, central banks and even some politicians are desperately hoping workers will lose their jobs and contribute to less demand for goods and services.
Below is the US unemployment rate over time with grey background recessions.
Recession causes unemployment to rise until lower rates promote growth and therefore more employment. Then unemployment falls significantly over many years.
What if the pandemic gave us an instant recession (you can see the thin grey background) and for some reason we're at the beginning of a multi year drop in unemployment.
There is zero chance of that happening according to markets, central banks and politicians.
Could it happen? A collapse in productivity could see more people being employed to make the same amount of goods / services. Unit / labour costs go through the roof, creating a sharp increase in wage inflation.
Does this sound familiar? Stagflation?
Is employee hoarding a thing?
Turkey delivers big rate hike to 15% but U-turn still underwhelms [Reuters]
Rate hike of 650bps and currency falls sharply.
US Reverse Repo Declines
More liquidity drives risk assets (equities & BTC in particular) higher as cash is being pulled out of reverse repo at the FED.
UK Hikes Rates
The Old Lady of Threadneedle St (The Bank of England) surprised markets by hiking base rate by 50bps. Sterling went up then fell back.
BOE Steps Up Inflation Fight With Surprise Rate Hike to 5% [Bloomberg]
Japan CPI inflation higher than expected in May, above BOJ target [investing.com]
Yellen Sees Lower US Recession Risk, Says Consumer Slowdown Needed [Bloomberg]
Swiss National Bank Hikes 25bps
Norway central bank raises rate to 15-year high, with more to come [Reuters]
RBA Governor to be announced in July
Chalmers backs RBA deputy’s jobs warning as appointment looms [AFR]
RBA Deputy Bullock Speaks
Inflation-matching pay rises will force more rate rises, warns RBA
Bullock says the RBA is focused on getting the unemployment rate to rise to 4.5% by the end of next year.
Australia's current unemployment rate is 3.6%, which fell from the previous rate of 3.7% — surprising economists and laying out a potential interest rate rise at the RBA's next meeting.
"While 4.5% is higher than the current rate, this outcome would still leave us below where it was pre-pandemic and not far off some estimates of where the NAIRU (non-accelerating inflation rate of unemployment) might currently be," she says."
"In other words, the economy would be closer to a sustainable balance point."
RBA Minutes [RBA] discusses 0.25bps hike or pause from meeting 6 June 2023
House Prices Up: “They noted that strong population growth had supported demand for housing and that this was largely affecting the established housing market. Expectations that the interest rate cycle was near its peak might also have played a role.”
Separately: “In discussing the risks to the inflation outlook, members observed that the monthly indicator of headline inflation had surprised on the upside in April and that the decline in goods price inflation had been less than observed in other countries. In addition, services price inflation had not yet shown signs of moderating and the evidence from abroad suggested that it may prove to be persistent.”
Aussie mortgage arrears soar with worse to come [Macrobusiness]
Inflation guarantees in union deals trigger 7pc-plus wage bumps [AFR]
Australian investors have no idea how bonds work [AFR]
Short 1/5 of capital at risk @ 1.2775