Welcome to your weekly macroeconomic round-up, where we spotlight a few of the most significant events in the last week.
US inflation hits 31-year high following surge in energy and house prices
The US consumer price index rose by 6.2% in the 12 months to October, compared to the 5.9% expected by economists. Removing volatile elements, such as energy and food prices, core inflation increased to 4.6% over the last 12 months. This is the largest increase in consumer prices since 1991. Price increases were broad based, with rising prices for autos, food, energy, rents and medical care. Crucially, this represents a firming of inflation beyond those areas that were most affected by the pandemic, such as energy.
President Joe Biden acknowledged the difficulties that higher consumer prices can bring for households, commenting that the government has “a set of actions and interventions” that it will be using to bring inflation under control.
UK economy continued to recover in third quarter but remains below pre-pandemic level
UK GDP data showed that the UK economy expanded by 1.3% in Q3 compared to a quarter earlier. This disappointed economists’ expectations (1.5%) and also represents a slowdown on the 5.5% growth in Q2. Growth was supported by an increase in household consumption and a moderate rise in business investment, which remains well below pre-pandemic levels. Net exports were a drag on growth. Trade with the EU fell again, indicating the ongoing difficulties between it and the UK in the post-Brexit transition period.
Yield curves continued to flatten, with investors progressively pricing back in the rapid increase in policy rates expected over the next year or two - which they had previously been taking out after the dovish Fed and BOE outturns of the previous week.
Inflation breakevens rallied, especially in the US, after the robust CPI print showed price pressures building in a broad range of categories well beyond energy (incidentally crude oil and US gasoline prices have been sideways for the past month). A number of agricultural commodities (e.g. wheat, coffee) struck multi-year highs. Precious metals registered strong performance as real yields were flat to lower over the week.
Equities were little changed over the week with subdued volatility and marginal US underperformance.
Look out for next week’s update, where we’ll be focusing on Chinese industrial and consumer data, UK labour market, inflation and retail sales data and US retail sales.
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