Inflation in India, US key rate
Every Monday, Mint’s Plain Facts section features five key data posts to watch for during the week. Indian inflation figures for May will be released on Monday. The US Fed meeting and the interest rate decisions of Brazil and Japan will set the tone for global markets. Data on the production of Chinese factories are also expected. Here are the five big numbers to follow:
1. Inflation in India
India’s inflation data for May – for retail and wholesale prices – will be released on Monday. Retail inflation had slowed to 4.3% in April, in part due to a favorable base, while wholesale inflation had climbed to 10.5%. The data should be read with caution, however: figures for April and May 2020 were sketchy due to the national lockdown, making two-year growth rates a better measure than year-over-year inflation. Such an analysis shows more clearly that consumer inflation is moderating from last year’s highs, and that the wedge between wholesale and retail inflation is narrower than one-year comparisons suggest. on the other.
As the year progresses, the IPC-WPI wedge could decline further, even reducing the differences from year to year. Rising demand could allow producers to pass higher raw material costs on to consumers. The economic rebound in the United States and China is expected to keep global commodity prices high. But if the monsoon rains are normal, it could cool domestic prices somewhat.
2. US Fed meeting
The U.S. Federal Open Market Committee will hold its fourth monetary policy meeting for the year this week, with a decision expected on Wednesday.
As the world’s largest economy recovers rapidly, fears of overheating are mounting. Retail inflation (5%) at its 13-year high in May did not help matters. The Federal Reserve’s response is important, not only to the United States, but also to central banks around the world, as they face the threat of similar post-covid inflation spikes.
Is it still too early for the Fed to start withdrawing its stimulus support? The central bank insists that recent employment data will help. Job creation was below market estimates last month, suggesting that the recovery may take time. Bond yields have also moderated over the past month, suggesting bond markets may accept the Fed’s argument that inflation is transient.
3. China’s industrial production
China’s National Bureau of Statistics will release production data for the country’s factories for the month of May on Wednesday. Industrial activity is on a slow path, having progressed 9.8% over one year in April, against 14.1% growth in March. The base effect that pushed output growth up late last year appears to be fading. Retail sales of consumer goods have slowed in recent months: the figure was up 17.7% in April year-on-year, from 34.2% in March. Soaring global commodity prices could also hurt demand, with producer price inflation reaching a 12-year high in May.
China’s GDP grew at a record 18.3% in the first quarter of 2021, but uncertainties remain about growth in the coming quarters. The government’s continued political support will remain essential to support the growth of the world’s second-largest economy.
4. Brazil’s key rate
Brazil has been among the hardest hit by the new surge in global inflation. Unlike its peers, Brazil’s central bank has acted quickly. Monetary tightening has yet to yield results. In May, inflation jumped over 8% year-on-year, much faster than April’s 6.8%. This has increased the chances of another rate hike when Copom, Brazil’s monetary policy committee, meets this Thursday.
The last two hikes in the Selic benchmark rate – 75 basis points each in March and May – were the strongest in years but were deemed essential to fight inflation. The rapid rise in prices is due to a severe water and energy crisis, which is pushing up electricity bills. Food and fuel prices have also increased in recent months.
As the Covid-ravaged economy begins to recover, price pressures pose a dilemma. The central bank has the difficult task of tightening its policy without jeopardizing the nascent recovery.
5. Japan’s policy
The Bank of Japan will announce its monetary policy decision on Friday. The Japanese economy has grown, but more slowly than other major countries. This is in part due to new restrictions on covid-19 ahead of the Tokyo Olympics, at a time when vaccine coverage remains low.
The deflationary environment surrounding the economy has eased somewhat, but uncertainty remains. The record 13% year-over-year jump in household spending in April was attributed mainly to the weak base effect last year.
At the same time, the government revised the estimate of the contraction of gross domestic product for the quarter ended in March to 3.9% on an annualized basis, against a previous estimate of 5.1%. Japan has ramped up vaccinations quickly and, if the pace continues, it could see a faster rebound in the coming months. For now, there is very little risk of a change in the Bank of Japan’s accommodative stance, most economists polled in Bloomberg poll
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