||(US) Advance Retail Salesq
||Retail sales beat expectations this month, even as gasoline sales fell. Core retail sales (ex. Autos and gas) printed positive (0.6% MoM), suggesting Q2 consumption has gotten off to a strong start
||(SW) SW CPI - CPIF (YoY)
||(EC) Euro-Zone Ind. Prod. wda (YoY)
||Despite yet another month of annual contraction, March industrial production increased from February levels by 1% MoM
|| (UK) Claimant Count Rate
||Unemployment in the UK fell from 7.9% to 7.8% (in line with the claimant count), on lower participation rather than improving fundamentals. Average weekly earnings are the lowest on record, at 0.8% in the past three months
||(EC) Euro-Zone GDP s.a. (YoY)
||Headline growth across the euro area was dragged down by worse than expected output numbers in Germany (0.1% QoQ) and France (-0.2% QoQ)
||(JN) GDP Annualized
||Economic growth ticked up in Japan in Q1, led by strong consumer spending and a resurgence of exports. However, weak investment suggests that corporate Japan has not yet found solid footing
||(EC) Euro-Zone CPI (YoY)
||(US) Consumer Price Index (YoY)
||(US) Housing Starts MOM%
||The large decline came as a result of the highly volatile multi-family category (-38.6%). Over the past 12 months, total housing starts are up 13.1%
||(CA) Consumer Price Index YoY
||(US) Leading Indicators
||Increases in building permits complemented positive contributions from interest rate spreads and equity market indices to drive the leading indicators above expectations
Plenty of worries still cloud the global macroeconomic outlook, but inflation is not one of them. Some investors did worry that inflation, like a thief in the night, would erode coupon income. But data released this week confirmed the trend: unprecedented global central bank bond buying programs have not sparked inflation.
Instead, low inflation on a global basis remains a key macro theme. Global inflation has been the dog that did not bark.*
The story differs by country, but here's the general lay of the land through the April data reports. The Canadian headline consumer price index (CPI) rose just 0.4% year-over-year—the lowest in 3.5 years. In the US, headline CPI rose just 1.1%, also a three-year low. In the euro zone, a headline CPI reading of just 1.2% is, by now you've guessed it, a three-year low. In Japan, the headline CPI is still in deflationary territory, at -0.5% year-over-year.
A few sore thumbs do stick out—these countries have run slightly higher inflation. In the developed world, the UK: in the emerging markets world, Turkey, South Africa, India, and Ghana. For the UK, a 2.8% year-over-year increase points to persistent higher inflation compared to the BoE's target. In Turkey, headline inflation printed above 6% on a year-over-year basis—but even this is down from double digit levels a year ago.
But, on the whole, the softening in energy and commodity prices portends a soft inflation picture ahead. Further, for the "underlying" inflation trend, we prefer to look at core inflation measures. Here's how core measures stack up for the nations and regions of the G-7:
- US Core CPI: +1.7% Year over Year (YoY)
- UK HICP excluding energy, food, and alcohol/tobacco: +2.3% YoY
- Europe HICP excluding energy, food, and alcohol/tobacco: +1.1% YoY
- Japan Core CPI: -0.8% YoY
- Canada Core CPI: +0.5% YoY
So, despite record monetary stimulus, inflation around the developed world remains moderate. This is consistent with our long-held view, but for many analysts and investors the puzzle remains: "how can central banks pump up the money supply and inflation not follow..?"
We have addressed that puzzle in several places, including a recent Point of View article on the "myth of the money multiplier". Here again we argue that central bank balance sheet increases provide liquidity, but do not necessarily increase the broad supply of money and credit. For example, a measure of broad money supply growth in the US (including "shadow credit") fell -3.4% in 2012. In Europe, M3 money supply grew just 2.6% last year and M4 in the UK fell -2.9%.
Would prices be even lower had central banks not intervened? This is likely: without central banks providing emergency liquidity, asset prices would have declined further as banks and non-banks sold assets in search of liquidity. Reigniting the credit boom has proved far more difficult to engineer.
Finally, the less talked about issue is a structural one. In short, supply side factors include aging populations in the developed world (e.g., Japan, where saving trumps spending) and better productivity and technological gains (would you trade your smartphone of today for a mobile phone from 2003 at 2003 prices?). Indeed, we see the last 20 years or so of global developed world CPI data to be reflective of this trend toward better, cheaper consumer goods in global CPI—the "Great Moderation" in consumer prices.
Bottom line: Despite constant chatter about inflation from gold bugs, inflationistas, and bond bears, it is the lack of inflation that needs more careful analysis. For now, the soft inflation readings provide some comfort to fixed income investors worldwide and more room for central banks to remain aggressive.
*The "dog that did not bark" is a reference to Arthur Conan Doyle's Sherlock Holmes story entitled "Silver Blaze". In it, Holmes uses the absence of a dog's bark as a clue to the perpetrator of a crime. The thinking: the lack of signal tells you something important. In the story, the perpetrator must have been familiar to the dog. The IMF also published a recent report on inflation with the same title.