hello,
Today, we got to know very interesting data regarding behavior of prices in the U.K. and in U.S.. It is worth noting that inflation in the UK in May was the lowest since October 2009, and core inflation was 0.4 percentage points below the consensus.
Consumer prices rose 1.5 percent in May, down from a rate of 1.8 percent in April, the Office for National Statistics said in London today. That compares with a median forecast of 1.7 percent.
Consumer prices fell 0.1 percent from April. Pressure came from supermarket price wars that drove down the cost of food and non-alcoholic beverages. These goods dropped 0.6 percent on the year, the first annual decline since 2006 and the largest since October 2004.
Clothing prices also fell, as did air and sea transport costs after travel operators raised fares in the run-up to Easter in April. Air fares declined 3.2 percent on the month and sea transport plunged 9.9 percent.
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| chart 2. CPI y/y in U.K.; 2014-06-17 |
What's more, the FRA rate contract 9×12 rose from 1.15 before the data to 1,165% today! So investors recognized that lower inflation will have no influence on the decisions of the BoE.
The fall in inflation is partly due to the base effect. Secondly, in other areas of the economy, we see a revival, which should cause the Bank of England will be optimistic about the return of inflation to target (2%).
Separately, the ONS said annual house-price inflation accelerated to 9.9 percent in April, the strongest since June 2010. They gained 2 percent on the month, the biggest monthly gain since January 2010. In London, price growth was 18.7 percent, the biggest gain since a record increase in July 2007.
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| chart 2. annual growth of property prices in the U.K.; 2014-06-17 |
U.S. inflation CPI 0.4% m/m; Expected 0.2% m/m.
CPI: 2.1% y/y; Expected 2.0% y/y.
Core CPI: 0.3% m/m; Expected 0.2% y/y
Core CPI: 2.0%y/y; Expected 1.8% y/y.
As reported by Bloomberg: "Consumer prices rose in May by the most in more than a year, showing U.S. companies are gaining some pricing power as the economy strengthens, and the homebuilding industry stabilized after a first-quarter swoon." (...) "The cost of living increased 0.4 percent, the biggest advance since February 2013, according to Labor Department data released today in Washington. Other figures showed builders broke ground on 1 million homes at an annualized rate after 1.07 million in April, the best two-month reading since late 2013."
American yield going crazy after the data
Inflation back above 2% much faster than expected and this is not coincidence because the base inflation is 2%.
They see market participants - American yield grow along the entire curve. FRA Contract 18×24, showing how the change rate of the spring of 2016 currently quoted is 1.2215%, which is discounted at this time almost four interest rate increases. I wonder if these movements are reflected in the dot-Chart.
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| chart 3. comparison EUR/USD with FRA Contract; 2014-06-17 |
Treasury securities dropped, pushing the yield on the benchmark 10-year note up to 2.65 percent at 4:18 p.m. in New York, compared with 2.60 percent at the close yesterday.
The reports will be welcome news to Federal Reserve policy makers meeting today and tomorrow as the pickup in inflation lessens the threat of a prolonged drop in prices that hurts economic growth. Central bankers are projected to continue scaling back their bond-buying program.
regards,
oscarjp
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