According to a report from the Wall Street Journal,""We’re given a reminder of the disinflationary effect weak global consumer demand, with price data from both France and the U.K. falling short of expectations. That weakness was not only manifest in the consumer durables component of the euro zone’s industrial production numbers but was also partly evident in Japan logging a second-straight current account deficit, which has been fueled by a shift to deficits in its trade account"".
As countries such as Japan and China go through a profound rebalancing and seek to shift their economies more to depend more on domestic drivers, the slack is not being met by demand from Europe or the U.S. Indeed, even though the American economy is recovering, its growth has been accompanied by a somewhat anomalous shrinking in its trade deficit, which leaves exporters in Japan and China in the lurch. Overall, these deficiencies exert downward pressure on consumer prices even as policy stimulus has bolstered asset prices, seen both in last year’s sharp run-up in advanced-country stocks and in various housing markets, such as the U.K.’s. In part, the pullback in stocks that we’ve seen so far this year captures a sense that there’s only so much earnings growth that can be extracted from low interest rates and supply-side improvements if that base of global consumer demand doesn’t pick up.
November’s CPI numbers raised concerns that France was sliding into deflation, especially amid the economy’s struggles. Those fears haven’t entirely been cleared away by a modest uptick in prices in December, though a few positive points of economic data in recent days, including strong year-end car sales, suggest a stabilization of prices rather than an imminent downward spiral. A slightly narrower current account position adds little to that overall economic picture of improvement too.
U.K. December Price Index up 2% on the year against expectations of +2.2% and down from +2.1% in November. Core CPI was up 1.8% on the year, in line with expectations.
U.K. December Price Index up 2% on the year against expectations of +2.2% and down from +2.1% in November. Core CPI was up 1.8% on the year, in line with expectations.
–December producer price index, output prices up 1.0% on the year, in line with forecasts; input PPI was down 1.2% on the year against forecasts for a 1.6% fall.
–November house prices were up 5.4% on the year versus +5.5% in October.
For the first time in four years, the U.K.’s consumer price index hit the Bank of England’s 2.0% target. With pipeline pressures muted and deflationary pressures elsewhere, economists will undoubtedly start worrying about CPI undershooting over the coming months. But the economy’s strength and rising house prices should mitigate those fears. At the same time, sterling’s rally seems to have run out of steam which should remove another downward inflationary force.
Euro Zone November industrial production rose 1.8% on the month and was up 3% on the year against expectations of +1.4% and +1.8%, respectively. The same measure was down 1.1% on the month and was up 0.2% on the year in October.
The gains in euro-zone industrial production were broad-based, though Italy’s pickup was relatively modest. Greece was an exception, registering a decline. The strength was led by capital goods and non-durable consumer goods. Durable consumer goods manufacturing shrank, consistent with continued weak consumer sentiment.
