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India:Wholesale Price Index
India is still the world’s growth leader among big economies. GDP this year is expected to rise by a sizzling 7.3%, according to the Economist Intelligence Unit. That’s a modest but symbolic edge over China’s projected 6.9% advance for 2015. But India is still home to more than its fair share of mixed messages and macro conflicts, as today’s update on wholesale prices will likely remind.
Deflation has gained a foothold in the world’s second-most populous nation. The wholesale price index slumped 4.5% in the year through September, extending a deflationary run that’s prevailed all year by this yardstick. Today’s update for October will likely deliver another round of red ink that’s well below zero, although the degree of decline may ease.
From the perspective of monetary policy, however, the central bank sees a sharply different trend for prices. The Reserve Bank of India tends to focus on consumer price inflation, which ticked up to a 5% increase in October vs. the year-earlier period. Even so, that’s still below the bank’s 6% target rate and so there are no worries at present about the threat of inflation running too hot, at least by official standards.
The bigger question is whether the economy is cooling after a strong run. Sentiment data for the manufacturing sector suggests that output growth in this corner has slowed to a crawl. The PMI dipped to 50.7 last month, close to the neutral 50.0 mark that separates growth from contraction. “A return to inflationary pressures [in consumer prices] indicates that the RBI may pause its loosening cycle for the rest of the year following a 50 bps cut to the key repo rate in September,” a Markit economist noted earlier this month.
Today’s WPI report will be widely read for fresh clues about inflation. Although wholesale prices will probably continue to fall on an annual basis, a lesser rate of deflation here will likely raise new questions about RBI’s capacity to cut rates further after several rounds of easing monetary policy this year.
Earlier this month on CNBC, the RBI governor effectively ruled out another cut for the foreseeable future: "My sense is that the underlying inflation is between 5-5.5% right now, that's the sort of run rate, so we probably will get back to that by the end of the year. So, that doesn't give us a lot of room below the 6% [repo rate]. Our sense is that over the course of the next year, because of disinflationary forces and the weak state of the global economy, it will come close to 5 which is what we're targeting for March of 2017."
Eurozone: Consumer Price Index
European Central Bank President Mario Draghi is worried that deflation risk continues to threaten the economy across the countries that share the euro. Although the preliminary estimate of consumer prices ticked up to zero in the preliminary October estimate of year-over-year inflation after September’s mild decline, there’s still not much confidence that a healthy rate of inflation is near.
It doesn’t help that GDP growth in the third quarter edged lower, rising just 0.3% in last week’s initial estimate. That’s also the pace that’s projected for Q4, according to Now-casting.com’s current estimate. The softer trend in economic activity is only a mild setback at the moment, but the downshift raises the odds that the ECB will cut rates next month.
The prospect of a new round of monetary stimulus in Europe at a time when the Federal Reserve is inching closer to start the process of raising rates highlights the possibility of conflicting trends for the world’s main central banks. The divergence among the two monetary powers may come into sharper focus today, if Europe’s consumer inflation delivers a downside surprise. Headline consumer prices were flat for the year through October via the flash estimate, slightly above September’s 0.1% deflationary dip.
Most of the pricing weakness is linked with the bear market in energy. Indeed, core inflation in Europe is considerably higher—core CPI increased 1.0% for the year last month, the strongest pace in three months. Nonetheless, if today’s revised data shows headline CPI dipping back into negative territory, the news will fuel more speculation that the ECB will juice its monetary stimulus program next month.
US:New York Fed Manufacturing Index
The manufacturing sector has had a rough year, but some metrics suggest that a rebound may be at hand. Exhibit A for the optimistic view is Markit’s purchasing managers’ index, which increased to a six-month high last month.
“Factory output growth accelerated, equivalent to around a four-percent annualised rate of increase, as firms saw the largest monthly jump in new order inflows since March,” Markit’s chief economist said earlier this month . “Export growth has also revived, suggesting firms are managing to adapt to the stronger dollar, as job creation picked up after slowing in September.”
The trend looks substantially weaker via the ISM Manufacturing, which slumped to a neutral reading in October—the lowest level in more than two years.
Deciding which benchmark is accurate may turn on how the November figures compare. Today’s release from the New York Fed will provide an early clue.
The crowd’s looking for more easing in the degree of contraction. Econoday.com’s consensus forecast sees this regional benchmark's headline number rising to a negative 5.0 for November, up from last month’s negative 11.4. If the prediction holds, the news will hint at the possibility that this battered corner of the US economy may have turned a corner and is headed for a degree of recovery in 2016.
Source:www.forexfactory.com
