Economic round-up
UK inflation figures surprised on the upside but US producer prices came in weak on Tuesday
The wider retail price index showed prices were flat in July versus a 0.1% slide in the previous year, bringing annual inflation up to -1.4% last month, having hit a record low of -1/6% in June. Stripping out the impact of monthly mortgage payments, annual inflation rose to 1.2% in July from 1.0% in June—the first time inflation has increased on the RPIX measure since February.
Today’s figures not only surprised on the upside, but are particularly notable when taking into account that inflation fell to -0.7% in the eurozone in July. “Part of this is due to the sterling depreciation which, despite gains over the last month, is significantly weaker than a year ago,” Charles Davis, economist at the Centre for Economics and Business Research said. “Furthermore, there are signs of recovery in global demand which has led commodity prices to rebound.”
Following recent statistics that revealed France, Germany and Japan have all emerged from recession in the second quarter of 2009, Germany today unveiled some additional upbeat data. The latest results of the ZEW survey, which measures economic expectations among financial market participants, illustrated a reversal of last month’s declining trend as the headline index jumped to 56.1 points in August from 39.5 the month before.
Germany’s better-than-expected GDP numbers helped improve participants’ view of current market conditions—to -77.2 from -89.3 in July—though the overall figure remains firmly negative. Regarding inflation, the ZEW survey shows expectations that inflation will rise again have edged up to 42.2 from 30.4 in July.
“Today’s results confirm the picture that the German economy is slowly returning to normality after being hit hard by the fallout from the global economic downturn,” Jörg Radeke, another economist with the Centre for Economics and Business Research said. But Radeke warned that the results need to be treated with some caution: “The index tends to (over-)react more quickly than other composite indices like the purchasing managers index (PMI) or the IFO index,” he said, adding that those surveyed are drawn exclusively from financial market participants, meaning the index is closely influenced by what happens in equity markets. “Despite these drawbacks, the index can be a very timely indicator in predicting changes in economic conditions,” Radeke concluded.
Following Monday’s broad-based sell-off in European equity markets, bargain hunters have helped fuel index gains on Tuesday, but the latest reading of the US producer price index (PPI) has since seen investors looking flattish.
US producer prices fell 0.9% last month, extending June's 1.8% slide and now sit 6.8% lower than June last year. Core producer prices, which exclude food and energy costs, slipped 0.1% in July compared to June but were still up 2.6% on a year ago.
“As soon as it was announced that US PPI data was much weaker than had been anticipated we saw investors looking to cut positions in equities fearing another rash sell off,” market strategist Joshua Raymond of City Index commented this afternoon. “Today's volumes have been very low again,” he continued, adding that this could signify that “investors could well start to stay away from the market before returning in September."
