At last, consumers are starting to see some relief: The rate of inflation for consumer prices declined in April, according to highly-anticipated Labor Department data published Wednesday.
The overall year-over-year price of consumer goods and services is now 8.3%, a 0.2% drop from March’s 40-year high, as measured by the consumer price index (CPI). That’s a slightly slower deceleration than some observers expected: Ahead of the Labor Department’s data release, 52 economists surveyed by Bloomberg projected an median estimated inflation rate of 8.1%.
The slowdown is partially driven by energy prices, which declined 2.7% in April after rising 11% percent in March. Gasoline prices fell 6.1%, as did used vehicles and clothing, which dropped 0.4% and 0.8%, respectively.
Falling prices on these products is good news for consumers — especially for gas prices, which have nearly doubled in the last year. The CPI numbers suggest that despite recent gas price surges, there are limits to how quickly those prices can grow.
Meanwhile, core inflation — which excludes typically volatile food and gas prices — doubled last month, going from 0.3% in March to 0.6% in April. The cost of shelter, food, airline fares, and new vehicles were the largest contributors to the all-items increase, according to the Labor Department.
In other words, pandemic-related supply chain issues and labor shortages are likely still a problem.
A possible turning point for inflation
Even if inflation has now peaked, a slower-than-expected slowdown implies that taming inflation will take longer than expected.
To reduce inflation down to a benchmark target rate of 2%, the Federal Reserve announced interest rate hikes in March and May, with five more likely to come in 2022. These hikes increase the cost of borrowing, which can slow down economic growth.
Hikes also tend to negatively affect the stock market, which is why investors look for signs that inflation is under control. If inflation is slowing, aggressive rate hikes beyond 0.25% increments are less likely — but the Fed has already suggested that 0.50% hikes could happen in June and July.
“There’s good things and bad things in the report,” says Tim Mahedy, a senior economist at global accounting firm KPMG. Reduced inflation, especially for gas prices, are good — but increased core inflation is a nagging concern, he says.
“For this report, I was holding my breath. And I was left holding my breath for next month’s [report], because there’s not enough there to make me think [inflation is] going one way or the other,” he says. “If we don’t get inflation below 8% in May, then I’ll start to get concerned.”
Barring unforeseen events, Mahedy says, a recession in 2022 is “very unlikely” despite widespread concerns. Consumer demand for goods and services remains very strong, and isn’t expected to contract for the rest of 2022, according to his projections.
China's Economy Contracts Sharply as Covid Zero Cuts Output – BNN
(Bloomberg) — China’s economy contracted in April, with Covid outbreaks and lockdowns dragging the industrial and consumer sectors down to the weakest levels since early 2020 as millions of residents were confined to their homes and factories were forced to halt production.
Industrial output fell 2.9% in April from a year ago, worse than the median estimate of a 0.5% increase in a Bloomberg survey of economists. Retail sales contracted 11.1% in the period, weaker than a projected 6.6% drop. The unemployment rate climbed to 6.1%, higher than the forecast of 6%.
China’s economy has taken an enormous toll from the government’s stringent efforts to keep the virus at bay. Beijing has insisted on sticking with its Covid Zero strategy to curb infections, even though the high transmissibility of omicron puts cities at greater risk of repeatedly locking down and reopening compared to earlier strains.
“Covid outbreaks in April had a big impact on the economy, but the impact is short-term,” the National Bureau of Statistics said in a statement. “With progress in Covid controls and policies to stabilize the economy taking effect, the economy is likely to recover gradually.”
China’s benchmark CSI 300 stock index was down 0.3% as of 10:04 am local time. The onshore yuan was little changed at 6.7917 per dollar. The yield on the 10-year government bonds rose 1 basis point to 2.83%.
Fixed-asset investment increased 6.8% in the first four months of the year, largely in line with projected growth of 7%, likely supported by the government’s push to expand infrastructure spending.
The economic shocks from the zero-tolerance policy have pushed China’s ambitious full-year growth target of around 5.5% further out of reach, and is weighing on the global growth outlook.
Beijing has signaled that policy makers will step up support for the economy, with Premier Li Keqiang recently urging officials to ensure stability through fiscal and monetary policy.
The People’s Bank of China took steps on Sunday to ease a housing crunch by reducing mortgage rates for first-time homebuyers. It left the interest rate on one-year policy loans unchanged on Monday, as inflation pressure and worries about capital outflows reduce the scope for more easing.
Monetary stimulus is proving less effective because of the stringent virus restrictions, with data on Friday showing businesses and consumers had little appetite to borrow in April. Credit growth weakened sharply last month, with new yuan loans sinking to the lowest level since December 2017.
(Updates with comment from statistics office)
©2022 Bloomberg L.P.
Potential of Seaweed on Economy Being Explored in Upcoming Webinar – VOCM
A webinar on the potential of seaweed as an economic driver is coming later this month.
The webinar, put together by The Laurentic Forum Consortium, will look at how coastal communities can use an abundance of seaweed to boost the economy, as seaweed is being used as fertilizer, diet supplements, bioplastics, animal feed, pharmaceutical products, and much more.
Webinar moderator and the executive director of the Canadian Centre for Fisheries Innovation, Keith Hutchings, says seaweed farming could provide opportunities in Newfoundland and Labrador.
He says if utilized correctly, communities and regions can add one more industry to help sustain them.
The webinar is taking place May 19.
The Laurentic Forum consortium invites you to join us on May 19, 2022, to discuss the tremendous opportunity and potential associated with the seaweed industry.
— Laurentic Forum (@ForumLaurentic) May 11, 2022
Charting the Global Economy: Growth Prospects Continue to Dim – BNN
(Bloomberg) — Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.
Prospects for the world economy are growing bleaker as Russia’s war in Ukraine takes a toll on European businesses and consumers, China employs a heavy-handed approach toward Covid-19 and US financial conditions tighten, according to the Institute of International Finance.
Central banks around the world continue to boost interest rates to counter a surge in inflation. In the US, the closely watched consumer price index showed inflation remains well-elevated. The squeeze to household budgets is also being felt in the UK and France.
Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy:
The world economy will essentially flatline this year as Europe falls into recession, China slows sharply and US financial conditions tighten significantly, according to a new forecast from the IIF, which counts more than 450 financial-services firms as members. The group forecasts 2.2% global GDP growth this year, markedly lower than the International Monetary Fund estimate of 3.6% on a purchasing power parity basis.
The gasoline market is starting to run out of control — just like diesel before it. US buyers are already sucking in more supplies from Europe as the summer driving season — which increases demand — gets underway. Add to that a loss of so-called secondary feedstocks from Russia that are critical in the production of the road fuel.
Americans got little respite from inflation in April, as prices for a range of necessities and discretionary-spending categories continued to climb at some of the fastest-ever rates. While annual measures of consumer prices cooled slightly from March — signaling a peak that economists expected — the details painted a more troubling picture as monthly figures advanced more than forecast.
US homebuyers are increasingly turning to adjustable-rate mortgages as overall borrowing costs soar. ARMs — which carry variable interest rates that reset based on the market at predetermined times — accounted for 10.8% of total home-loan applications last week. That’s up from 3.1% of activity at the start of the year and is the largest share since 2008.
The French government pledged to increase social benefits and issue food vouchers to the poorest households as freshly re-elected President Emmanuel Macron seeks to avert panic over a cost-of-living crisis before legislative elections next month.
The UK economy unexpectedly contracted in March as the cost of living squeeze forced consumers to cut back on spending, throwing doubt on the Bank of England’s ability to keep hiking interest rates and piling pressure on Prime Minister Boris Johnson’s government to respond.
For many of Sweden’s highly indebted consumers, the Riksbank’s sudden interest-rate increase at the end of April marks the start of a new squeeze that officials have long fretted about.
China’s exports and imports struggled in April as worsening Covid outbreaks cut demand, undermined production and disrupted logistics in the world’s second-largest economy.
Japan’s household spending climbed in March for the first time in three months as virus restrictions were lifted across the nation, offering some support for private consumption at the end of a bruising quarter for the economy.
Malaysia’s central bank unexpectedly raised its benchmark interest rate in an effort to head off price pressures, while authorities in Argentina boosted borrowing costs for the fifth time this year.
Latin American central banks will likely extend their monetary tightening campaigns beyond what was originally expected after inflation surged past forecasts in April, with steep increases in food and fuel costs stinging policy makers.
South Africa is headed for a record year of power cuts if the rate of station breakdowns fails to improve, particularly at coal-fueled plants. Africa’s most industrialized nation was already on track to exceed the annual record for energy shed from controlled blackouts, a practice locally known as loadshedding that’s used to prevent the grid from a total collapse.
©2022 Bloomberg L.P.
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