BoE Governor Andrew Bailey said that inflation was “way above where we (want) it to be”. He added, “inflation is bad for the least well-off generally and this inflation is particularly bad.”
Bailey noted that further rate hikes were likely in the coming months. Meanwhile, efforts to bring inflation under control are likely to take between 18 months and two years.
UK GDP contracted -0.6% mom in September, worse than expectation of -0.4% mom. Services dropped -0.8% mom. Production grew 0.2% mom while construction rose 0.4% mom. GDP was then -0.2% below its pre-coronavirus levels in February 2020.
Q3 GDP contracted -0.2% qoq in Q3, versus expectation of -0.5% qoq. Quarterly GDP was -0.4% below pre-coronavirus level in Q4 2019. There was no growth in services during the quarter, while production dropped -1.5%, construction rose 0.6%.
Full monthly GDP release here.
Also released, industrial production came in at 0.2% mom, -3.1% yoy in September, versus expectation of -0.3% mom, -4.3% yoy. Manufacturing production came in at 0.0% mom, -5.8% yoy, versus expectation of -0.4% mom, -6.6% yoy. Goods trade deficit narrowed from GBP -17.2B to GBP -15.7B, smaller than expectation of GBP -18.6B.
SNB board member Andrea Maechler said an in interview, “it is not out of the question that, based on new figures and developments, further rate hikes may be necessary to ensure price stability in the medium term.”
“So it is really important to make an overall assessment with the figures we will have in December,” she said.
Regarding inflation, “on the one hand, a single figure will never allow us to claim victory, and on the other hand, it is still 3%, far from the range that we associate with price stability,” Maechler said.”We will claim victory when inflation settles below 2% on a sustainable basis.”
BoC Governor Tiff Macklem said yesterday, “We need to rebalance the labour market… This will be a difficult adjustment. We want to do this in the best way possible for Canadian workers and businesses.”
“The unemployment rate in June hit a record low [of 4.9%] – and while that seems like a good thing, it is not sustainable,” he explained. “The tightness in the labour market is a symptom of the general imbalance between demand and supply that is fuelling inflation and hurting all Canadians.”
Kansas City Fed President Esther George said yesterday, “I continue to see several advantages for a steady and deliberate approach to raising the policy rate.”
“Without question, monetary policy must respond decisively to high inflation to avoid embedding expectations of future inflation,” she said. “A more measured approached to rate increases may be particularly useful as policymakers judge the economy’s response to higher rates”.
“As the tightening cycle continues, now is a particularly important time to avoid unduly contributing to financial market volatility, especially as volatility stresses market liquidity with the potential to complicate balance sheet run-off plans,” George said.
“The degree of tightening necessary will only be determined by observing the dynamics of the economy and inflation and cannot be predetermined by theory or pre-pandemic benchmarks,” George said.
Cleveland Fed President Loretta Mester yesterday’s October CPI report “suggests some easing in overall and core inflation.” However, “there continue to be some upside risks to the inflation forecast.” She expects to see a “meaningful” decrease in inflationary pressures next year and after, with CPI back to 2% target by 2025.
“Given the current level of inflation, its broad-based nature, and its persistence, I believe monetary policy will need to become more restrictive and remain restrictive for a while in order to put inflation on a sustainable downward path to 2%,” she said.
“Despite the moves we have made so far, given that inflation has consistently proven to be more persistent than expected and there are significant costs of continued high inflation, I currently view the larger risks as coming from tightening too little.”
San Francisco Fed President Mary Daly said yesterday that the slowdown in inflation was “goods news”. Yet, “one month does not a victory make.”
“We have to be resolute to bring inflation down; we’re united in that commitment,” she said. “It’s raising the rate and then holding it for a length of time that is sufficient to bring inflation reliably back to 2%.”
“I would rather move a little bit higher and have to come back then to move a little bit less high and to then tell people we’re going to go higher, because at some point it does seep into inflation expectations,” Daly said.
At the same time, she said, “I don’t want to be over tightening to the point where we throw the economy into a sharp recession, but if we are talking about a rate hike on either side, I want to fully get inflation sustainably down to 2% on average.”
Gold’s rally accelerates higher today, as reaction to Dollar’s post-CPI sell-off. Break of 179.28 resistance confirmed completion of a double bottom pattern (1614.60; 1616.51), which raises the chance of trend reversal.
Further rise is now expected as long as 1701.99 support holds. Next target is 38.2% retracement of 2070.06 to 1614.60 at 1788.58. Sustained break of 1788.58 will pave the wave to 61.8% retracement at 1896.07.
Dallas Fed President Lorie Logan said “This morning’s CPI data were a welcome relief, but there is still a long way to go.”
“I believe it may soon be appropriate to slow the pace of rate increases so we can better assess how financial and economic conditions are evolving,” she added.
Philadelphia Fed President Patrick Harker said, “In the upcoming months, in light of the cumulative tightening we have achieved, I expect we will slow the pace of our rate hikes as we approach a sufficiently restrictive stance.”
He added, “at some point next year, I expect we will hold at a restrictive rate for a while to let monetary policy do its work”. What happened after there will be driven by data. “If we have to, we can always tighten further, based on the data.”
“What we really need to see is a sustained decline in a number of inflation indicators before we let up on tightening monetary policy,” he said, adding “we need to make sure inflation expectations don’t become unanchored.”
ECB Executive Board member Isabel Schnabel said in a speech, “there is no time for monetary policy to pause… We will need to raise rates further, probably into restrictive territory.”
“Only a deep recession with a sharp rise in unemployment could be expected to significantly dampen inflation pressure,” Schnabel said. “This is currently unlikely, not least due to the robust labour market, large excess savings and the massive fiscal support.”
US initial jobless claims rose 7k to 225k in the week ending November 5. Four-week moving average of initial claims rose 250 to 218.75k.
Continuing claims rose 6k to 1493k in the week ending October 29. Four-week moving average of continuing claims rose 32k to 1450k.
US CPI rose 0.4% mom in October, below expectation of 0.7% mom. Core CPI rose 0.3% mom, below expectation of 0.5% mom. Energy rose 1.8% mom while food rose 0.6% mom.
Over the last 12 months, CPI slowed from 8.2% yoy to 7.7% yoy, below expectation of 8.0% yoy. That’s the lowest rate since January this year. Core CPI slowed from 6.6% yoy to 6.3% yoy, below expectation of 6.5% yoy. Energy index was up 17.6% yoy while food was up 10.9% yoy.
In the monthly economic bulletin, ECB said the Governing Council expects a “further weakening” of economic activity “in the remainder of 2022 and the beginning of 2023”.
High inflation continues to “dampen spending and production” and severe disruptions in gas supply “have worsened the situation further”.
Additionally, “worsening terms of trade”, with imports prices rising faster than exports prices, are “weighing on incomes in the euro area”.
Risks to the economic growth outlook are “clearly on the downside, especially in the near term”. Risks to the inflation outlook are “primarily on the upside”.
ECB’s future policy rate decisions will continue to be “data dependent” and follow a “meeting-by-meeting approach”.
BoJ Governor Haruhiko Kuroda told the parliament, “it’s premature to lay out details of an exit strategy. But one major factor of debate will be the pace of increase in the BoJ’s short-term policy rate, now set at -0.1%.”
“Another factor would be how to adjust its balance sheet,” he said, noting that other major central banks adopted the sequence of interest rate hike first, then shrinking balance sheet.
“It’s extremely important for the BOJ to underpin the economy with ultra-loose monetary policy and ensure the necessary environment is falling into place for companies to hike wages,” Kuroda emphasized.
Minneapolis Federal Reserve Bank President Neel Kashkari said, “at the next meeting, which is mid-December, I don’t know what we are going to do.”
“There’s a lot of talk in the public about might we raise rates by 50 basis points, might we raise rates by 75 basis points – those are certainly going to be on the table, but could it be something beyond that? It’s possible too,” he added.
Fed’s dual mandate, price stability and maximum employment could come into tension at a certain point. However, Kashkari said, “we are a long, long, long way away from that right now, so that’s why any talk of a pivot is entirely premature.”
Chicago Fed President Charles Evans said yesterday, “there’s benefits to adjusting the pace (of tightening) as soon as we can.”
“I’m hopeful that we’re getting to a point where the dynamics for inflation turning over and returning towards our 2% objective will be put in place, if not very soon, soon, and we’ll actually see it in inflation,” he said.
“If you don’t begin to think about adjusting the pace, taking account of lags, and you just keep increasing rates by a large amount every time you get a disappointing report,” then “next thing you know, you’re at a very high federal funds rate.”
“I’m going to continue to be nervous that, as we go higher than that, it could be that the economy is going to face more challenges, and that that could present risks on the ‘real’ side, the full employment mandate,” he said. “It’s a risk.”
Notable decline is seen in GBP/CHF today and it’s now pressing a head and shoulder neckline support, as well as 55 day EMA. Considering bearish divergence condition in 4 hour MACD, 1.1574 is likely a short term top. Fall from there should be correcting whole rebound from 1.0183. Deeper fall is now in favor as long as 1.1410 resistance holds.
Firm break of 1.1243support will complete a head and shoulder top (ls: 1.1393; h: 1.1574; rs: 1.1410). In such case, further fall should be seen to 100% projection of 1.1574 to 1.1243 from 1.1410 at 1.1079 and below.
Stronger support should be seen from 38.2% retracement of 1.0183 to 1.1574 at 1.1043 to contain downside to bring rebound, at least on first attempt.
However, strong break of 1.1043 will open up deeper decline to 161.8% projection at 1.0874, which is close to 1.0893 support, before bottoming.
RBA Deputy Governor Michele Bullock said in a speech that “further increases in interest rates will be required” to meet the inflation target. Meanwhile, the “size and timing of future increases” will depend on the data.
She added that inflation is “increasingly broad based” and it “won’t peak until the end of the year”. After that, RBA expects ” rising interest rates and cost-of-living pressures to drive a moderation in consumption that brings demand more in line with supply”. And that should help to get inflation back to target “over the next couple of years”.
Bullock also discussed four uncertainties around the central forecasts. Firstly, in the international environment, a “significant concern” is the “downside risks in China”. Second is what the current high inflation and cost-of-living pressures might do to price and wage expectations in Australia. Third is the behavior of households as interest rates and inflation rise. Fourth is around energy and other supply shocks that could boost inflation and lower growth.
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UK NIESR: GDP growth to be flat in Q4, but contraction risk elevated
UK NIESR said, today’s data confirmed a “production-driven contraction in GDP in Q3. It’s expectation GDP growth to be flat in Q4.
However, “given that October PMIs recorded figures below the neutral 50 for both the services and manufacturing sectors, consumer and business confidence is plummeting, and higher-than-expected inflation and interest rates continue to squeeze budgets, the risk of a contraction in GDP in the fourth quarter of this year remains elevated, NIESR said.
“Whether the Chancellor’s upcoming Autumn Statement will alleviate or aggravate current recessionary risks will become clearer next week.”
Full release here.