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  • CPI Rose in April, Has Grown 2% Over Last Year

    The Consumer Price Index for All Urban Consumers rose 0.3% in April, according to the Bureau of Labor Statistics . The CPI-U has grown in eleven of the last twelve months (in October it came in at 0.0). The all items index has grown 2.0% over the last 12 months. From the Bureau of Labor Statistics release: The indexes for gasoline, shelter, and food all rose in April and contributed to the seasonally adjusted all items increase. The gasoline index rose 2.3 percent; this led to the first increase in the energy index since January, despite declines in the electricity and fuel oil indexes. The food index rose 0.4 percent for the third month in a row, as the index for meats rose sharply. The index for all items less food and energy rose 0.2 percent in April, with most of its major components posting increases, including shelter, medical care, airline fares, new vehicles, used cars and trucks, and recreation. The indexes for apparel, household furnishings and operations, and personal care were all unchanged in April. The all items index increased 2.0 percent over the last 12 months; this compares to a 1.5 percent increase for the 12 months ending March, and is the largest 12-month increase since July. The index for all items less food and energy has increased 1.8 percent over the last 12 months. The energy index has risen 3.3 percent, and the food index has advanced 1.9 percent over the span. Here's a look at the CPI for All Urban Consumers over the last year: Read the full release here .
  • Consumer Price Index On The Rise

    The Consumer Price Index for All Urban Consumers rose 0.2% in March, according to the Bureau of Labor Statistics . 0.2 doesn't look so big, but the news comes after two straight months of 0.1% growth.The CPI-U has grown in ten of the last eleven months. The all items index has grown 1.5% over the last 12 months. From the Bureau of Labor Statistics release: Increases in the shelter and food indexes accounted for most of the seasonally adjusted all items increase. The food index increased 0.4 percent in March, with several major grocery store food groups increasing notably. The energy index, in contrast, declined slightly in March as decreases in the gasoline and fuel oil indexes more than offset increases in the indexes for electricity and natural gas. The index for all items less food and energy also rose 0.2 percent in March. Besides the 0.3 percent increase in the shelter index, the indexes for medical care, for apparel, for used cars and trucks, and for airline fares also increased. The indexes for household furnishings and operations and for recreation both declined in March. The all items index increased 1.5 percent over the last 12 months; this compares to a 1.1 percent increase for the 12 months ending February. The index for all items less food and energy has increased 1.7 percent over the last 12 months, as has the food index. The energy index has risen slightly over the span, advancing 0.4 percent. Here's a look at the CPI for All Urban Consumers over the last year: Read the full release here .
  • Jeffrey Frankel on Europe's Need to Ease

    Europe needs to do something, according to Jeffrey Frankel . Specifically, the European Central Bank needs to do something about low inflation, which could soon become deflation in some EU economies. So Frankel is advocating for easing monetary policy. Does that mean quantitative easing? Not so much. Frankel: QE would present a problem for the ECB that the Fed and other central banks do not face. The eurozone has no centrally issued and traded Eurobond that the central bank could buy. (And the time to create such a bond has not yet come.) That would mean that the ECB would have to buy bonds of member countries, which in turn means taking implicit positions on the creditworthiness of their individual finances. Germans tend to feel that ECB purchases of bonds issued by Greece and other periphery countries constitute monetary financing of profligate governments and violate the laws under which the ECB was established. The German Constitutional Court believes that OMTs would exceed the ECBs mandate, though last month it temporarily handed the hot potato to the European Court of Justice. The legal obstacle is not merely an inconvenience but also represents a valid economic concern with the moral hazard that ECB bailouts present for members’ fiscal policies in the long term. That moral hazard was among the origins of the Greek crisis in the first place. Fortunately, interest rates on the debt of Greece and other periphery countries have come down a lot over the last two years. Since he took the helm at the ECB, Mario Draghi has brilliantly walked the fine line required for “doing what it takes” to keep the eurozone together. (After all, there would be little point in preserving pristine principles in the eurozone if the result were that it broke up. And fiscal austerity by itself was never going to put the periphery countries back on sustainable debt paths.) At the moment, there is no need to support periphery bonds, especially if it would flirt with unconstitutionality. What, then, should the ECB buy, if it is to expand the monetary base? It should not buy Euro securities, but rather US treasury securities. In other words, it should go back to intervening in the foreign exchange market. Here are several reasons why. First, it solves the problem of what to buy without raising legal obstacles. Operations in the foreign exchange market are well within the remit of the ECB. Second, they also do not pose moral hazard issues (unless one thinks of the long-term moral hazard that the “exorbitant privilege” of printing the world’s international currency creates for US fiscal policy). Third, ECB purchases of dollars would help push the foreign exchange value of the euro down against the dollar. Such foreign exchange operations among G-7 central banks have fallen into disuse in recent years, in part because of the theory that they don’t affect exchange rates except when they change money supplies. There is some evidence that even sterilized intervention can be effective, including for the euro. But in any case we are talking here about an ECB purchase of dollars that would change the euro money supply. The increased supply of euros would naturally lower their foreign exchange value. Read the full post here .
  • The Dangers of Ultra Low Inflation

    Annual headline inflation is very low in Europe. Not so low that we have to shift to talking about deflation. At least not yet. But very low inflation can present problems as well. And you can be sure central bankers and policy makers in developed economies around the globe are watching Europe and the European Central Bank closely. the IMF 's Reza Moghadam outlines the challenges of "ultra low inflation" here:
  • Bank of America Chief Economist on Deflation Concerns

    With annual rates of inflation hovering near just 1% in the U.S., Europe, and Japan, the concern about deflation and its effect on the global market is up. Bank of America Chief Economist Mickey Levy sees the three cases as somewhat different, and warns us not to treat them as part of a clear global trend. More importantly, he argues that we should be careful to distinguish between "bad deflation" and "healthy price declines." Here is an excerpt from his op-ed at Vox : Deflation stemming from insufficient demand and growth-constraining economic policies can drain confidence and become negatively reinforcing, as Japan has shown. In such situations, aggressive macroeconomic policy stimulus designed to jar expectations and boost demand is appropriate. Europe’s downward price and wage pressures are necessary adjustments to its earlier excesses, and relying excessively on aggressive monetary policy to stimulate demand is not a lasting economic remedy. Europe is not destined to fall into a Japanese-style prolonged malaise, but it must continue to pursue reforms that lift productive capacity and confidence. The US situation is very different. The economic expansion is gaining momentum (temporarily sidetracked by unseasonal winter storms), unemployment is falling steadily, personal income is growing faster than inflation, and household net worth is at an all-time high. Expectations of deflation are not apparent in either household or business behaviour. Concerns about lingering labour-market underperformance are warranted; angst about deflation is not. Prices of some goods and services in the US have been falling, benefitting from technological innovation, improved product design, or heightened competition and distribution efficiencies through the internet. Examples abound: flat-screen TVs, computers, automobiles, reduced fees on financial transactions, online consumer and business purchases, etc. These lower prices and quality improvements explain the vast majority of the recent deceleration in inflation – the PCE deflator for goods continues to decline and is flat for nondurables, while it has been rising at a fairly steady pace of 2% for services. These innovation-based price reductions improve standards of living and free up disposable income to spend on other goods and services. They boost aggregate demand and enhance economic performance. And they contribute positively to longer-run potential growth. It is unclear why US policymakers and commentators fear disinflation that stems from innovation-based price reductions amid accelerating aggregate demand. European policymakers face tougher choices. Read Clarifying the debate about deflation concerns here .
  • CPI Continues Steady Rise

    The Consumer Price Index for All Urban Consumers rose 0.1% in January, according to the Bureau of Labor Statistics . The CPI-U has grown in eight of the last nine months (in October it came in at 0.0). The all items index has grown 1.6% over the last 12 months. From the Bureau of Labor Statistics release: Increases in the indexes for household energy accounted for most of the all items increase. The electricity index posted its largest increase since March 2010, and the indexes for natural gas and fuel oil also rose sharply. These increases more than offset a decline in the gasoline index, resulting in a 0.6 percent increase in the energy index. The index for all items less food and energy also rose 0.1 percent in January. A 0.3 percent increase in the shelter index was the major contributor to the rise, but the indexes for medical care, recreation, personal care, and tobacco also increased. In contrast, the indexes for airline fares, used cars and trucks, new vehicles, and apparel all declined in January. The food index rose slightly in January. The index for food at home rose 0.1 percent, with major grocery store food groups mixed. The all items index increased 1.6 percent over the last 12 months; this compares to a 1.5 percent increase for the 12 months ending December. The index for all items less food and energy has also risen 1.6 percent over the last 12 months. The energy index has risen 2.1 percent over the span, and the food index has increased 1.1 percent. Here's a look at the CPI for All Urban Consumers over the last year: Read the full release here .
  • Yellen Stays the Course in First Congressional Hearing as Chair of the Fed

    Congress welcomed Janet Yellen to her new post as Chair of the Federal Reserve yesterday by asking her to spend six hours with them in an extended hearing on the state of the U.S. economy. Yellen did not give any signs that she will turn sharply from any Fed positions held by her predecessor, Ben Bernanke. The Fed will continue to aim to ease out of some of its quantitative easing as long as the labor market shows improvement. Here are a few key excerpts from her testimony. On the state of the economy : My colleagues on the FOMC and I anticipate that economic activity and employment will expand at a moderate pace this year and next, the unemployment rate will continue to decline toward its longer-run sustainable level, and inflation will move back toward 2 percent over coming years. We have been watching closely the recent volatility in global financial markets. Our sense is that at this stage these developments do not pose a substantial risk to the U.S. economic outlook. We will, of course, continue to monitor the situation. On monetary policy : Our current program of asset purchases began in September 2012 amid signs that the recovery was weakening and progress in the labor market had slowed. The Committee said that it would continue the program until there was a substantial improvement in the outlook for the labor market in a context of price stability. In mid-2013, the Committee indicated that if progress toward its objectives continued as expected, a moderation in the monthly pace of purchases would likely become appropriate later in the year. In December, the Committee judged that the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions warranted a modest reduction in the pace of purchases, from $45 billion to $40 billion per month of longer-term Treasury securities and from $40 billion to $35 billion per month of agency mortgage-backed securities. At its January meeting, the Committee decided to make additional reductions of the same magnitude. If incoming information broadly supports the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. That said, purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on its outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases. on strengthening the financial system : Regulatory and supervisory actions, including those that are leading to substantial increases in capital and liquidity in the banking sector, are making our financial system more resilient. Still, important tasks lie ahead. In the near term, we expect to finalize the rules implementing enhanced prudential standards mandated by section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. We also are working to finalize the proposed rule strengthening the leverage ratio standards for U.S.-based, systemically important global banks. We expect to issue proposals for a risk-based capital surcharge for those banks as well as for a long-term debt requirement to help ensure that these organizations can be resolved. In addition, we are working to advance proposals on margins for noncleared derivatives, consistent with a new global framework, and are evaluating possible measures to address financial stability risks associated with short-term wholesale funding. We will continue to monitor for emerging risks, including watching carefully to see if the regulatory reforms work as intended. Read the full speech here .
  • A 'Downtonomics' Primer

    Perhaps you, like us, have lost a friend or spouse to PBS every Sunday evening. Downton Abbey remains among the most addictive of telenovelas dramas on television today. But you might appreciate that your friends and loved ones are, intentionally or not, picking up some valuable economics lessons each week as they drift across the ocean and back some nine decades. Washington Post business reporter Steven Mufson has identified some of the economic lessons from Downton--what he calls "Downtonomics." Here are 8: 1 New technology demands adaptation — and not everyone can manage it; 2 Workers who don’t adapt slide down the economic ladder; 3 Estate, or inheritance, taxes can be useful; 4 The wealthy should do some estate planning; 5 Beware of speculative bubbles fueled by cheap foreign capital; 6 Invest in your company; don’t suck it dry; 7 Treat workers well and they will repay your loyalty; 8 Can an old lumbering enterprise re-create itself for a new economy? Read Downtonomics: A fictional estate’s troubles echo in the modern world here .
  • Feldstein on Steadily Improving Standard of Living

    Looking for some cheery economic analysis? Then Martin Feldstein is your man. Stop fretting over the slow rate of growth. Looking beyond 2014, Feldstein makes the case that slow, steady growth will bring significant improvement in the standard of living. From Project Syndicate : The Congressional Budget Office (CBO) projects that real per capita GDP growth will slow from an annual rate of 2.1% in the 40 years before the start of the recent recession to just 1.6% between 2023 and 2088. The primary reason for the projected slowdown is the decrease in employment relative to the population, which reflects the aging of American society, a lower birth rate, and a decelerating rise in women’s participation in the labor force. While the number of persons working increased by 1.6% per year, on average, from 1970 to 2010, the CBO forecasts that the rate of annual employment growth will fall to just 0.4% in the coming decades. A drop in annual growth of real per capita GDP from 2.1% to 1.6% looks like a substantial decline. But even if these figures are taken at face value as an indication of future living standards, they do not support the common worry that the children of today’s generation will not be as well off as their parents. An annual per capita growth rate of 1.6% means that a child born today will have a real income that, on average, is 60% higher at age 30 than his or her parents had at the same age. Of course, not everyone will experience the average rate of growth. Some will outperform the average 60% rise over the next three decades, and some will not reach that level. But a 30-year-old in 2044 who experiences only half the average growth rate will still have a real income that is nearly 30% higher than the average in 2014. But things are even better than those numbers imply. Although government statisticians do their best to gauge the rise in real GDP through time, there are two problems that are very difficult to overcome in measuring real incomes: increases in the quality of goods and services, and the introduction of new ones. I believe that both of these problems cause the official measure of real GDP growth to understate the true growth of the standard of living that real GDP is supposed to indicate. Read The Future of American Growth here .
  • Draghi on Eurozone's 'Path from Crisis to Stability'

    Well, isn't this a change. At this year's annual World Economic Forum in Davos, European Central Bank President Mario Draghi spoke about reduced risks and "dramatic recovery" in Europe's economies. In this interview with Philipp Hildebrand , Draghi talked about how Europe has moved to more stable footing, and addresses the risks ahead (including deflation):
  • Marketplace Explainer: Reverse Repo

    If the economy continues its steady improvement--and especially if growth picks up the pace--the Federal Reserve will be trying to manage something a little tricky: increasing interest rates without inflation climbing. That means trying to influence important players in the financial sector who are not banks. One of the tools they will likely use is called reverse repo. Marketplace 's Stacey Vanek Smith gives a good explainer on how reverse repo works (and no, Harry Dean Stanton and Emilio Estevez are not involved).
  • The Fed: 100 Years Old and Flexing Its Muscles

    As the Federal Reserve wraps up its first century (the Federal Reserve Act was passed in December 1913), Greg Ip sees echos of the Washington-based battles over the role and power of the U.S. central bank from the Wilson years. Ip discusses the early days of the Fed and the power of the Fed today with his Economist colleague, Zanny Minton-Beddoes .
  • SF Fed Economic Letter: 'Consumer Inflation Views in Three Countries'

    Inflation expectations among consumers are a bit off of actual inflation trends, not just in the U.S. but also in other top economies. That can make the life of central bankers a little more tricky. In an Economic Letter for the San Francisco Fed , Bharat Trehan and Maura Lynch dig into the inflation expectations in Britain, Japan, and the U.S., and the gap between expectations and "relatively long-lasting shifts in the inflation rate." ...Above-target consumer expectations are ironic since the Fed and the Bank of Japan have been worrying, to different degrees, about deflation. The data also show that consumer inflation expectations are extremely sensitive to oil prices. Somewhat alarmingly, those expectations seem to be related to the level of oil prices, not the rate of change as economic theory would suggest. These two characteristics of consumer inflation expectations may be related and could arise from the way consumers form expectations. Rational inattention theory, which emphasizes the costs of processing information, suggests that households may not spend a lot of time and effort rethinking their estimate of the prevailing inflation rate (see Sims 2010). These information processing costs tend to make consumers update their inflation expectations infrequently, especially during periods when inflation is relatively stable. Moreover, instead of using sophisticated models to predict inflation, consumers are more likely to rely on a few simple rules of thumb. Because oil prices are highly volatile, one such rule of thumb could be linked to the price of oil. The apparent importance of the level of oil prices may be related to this casual way of forming expectations. Consumers may well have been feeling the pinch of rising oil prices over the past few years. In an era of stagnant incomes, they could be equating high oil prices with high inflation, an association that presumably will weaken over time. By contrast, the evidence indicates that consumers have not reacted much to central bank inflation target announcements in recent years. This insensitivity is at least partly the result of the prevailing low and stable inflation rates and could go away if the behavior of inflation changed significantly. And even if it were long-lived, the insensitivity of consumer inflation expectations to inflation targets or other central bank announcements does not mean that monetary policy cannot influence consumer behavior. There is no doubt that financial market participants react to monetary policy announcements, and those reactions often have important economic effects. As financial markets respond, the resulting changes in asset prices affect consumer behavior. For instance, if a central bank announces that it expects to ease monetary policy in the future, the currency exchange rate would probably drop. That in turn would tend to lead to higher inflation over time, which would affect consumer behavior. Read the full post here .
  • CPI Keeps Slowly Increasing

    The Consumer Price Index for All Urban Consumers rose 0.2% in September, according to the Bureau of Labor Statistics . It was the fifth month in a row with an increase in CPI, though the year-over-year growth was the smallest increase since April. From the Bureau of Labor Statistics release: The energy index rose 0.8 percent in September and accounted for about half of the seasonally adjusted all items increase. All the major energy component indexes rose in September. The food index was unchanged, with declines in the indexes for fruits and vegetables and for nonalcoholic beverages offsetting increases in other indexes. The index for all items less food and energy rose 0.1 percent in September, the same increase as in August. The shelter and medical care indexes also advanced and accounted for most of this increase. The indexes for new vehicles and for airline fares rose as well, while the apparel and recreation indexes declined. The all items index increased 1.2 percent over the last 12 months; this was the smallest 12-month increase since April. The index for all items less food and energy has risen 1.7 percent over the last year with the shelter and medical care indexes both up 2.4 percent. The food index has risen 1.4 percent, while the energy index has declined 3.1 percent. Here's a look at the CPI for All Urban Consumers over the last year: Read the full release here .
  • Heidi Moore: The New Head of India's Central Bank May Follow a Familiar Playbook

    Like so many students, Raghuram Rajan is off to a new place and new challenges this month. But there is no time for acclimation. Rajan is taking over as the top central banker in India, and his to-do list leaves no room for delay. The rapid drop in the value of India's currency, the rupee, means that Rajan needs a clear plan to fight against rising inflation and falling growth. To get a sense of how he might approach the challenges ahead, The Guardian 's Heidi Moore suggests we look to a familiar beard face. Thanks to Ben Bernanke, we know the script: pour in stimulus, as fast as possible. Rajan is Bernanke disciple; Rajan's answer to the sharp slide of the rupee is, as Bernanke's was back in 2009, to open up the central bank's lending windows to free up the flow of money and welcome back foreign investors. What's ironic is that Rajan's and Bernanke's fates as economic policy-makers are tied up in other ways, reaching back years. Kurt Vonnegut, in his novel Cat's Cradle, wrote of the fictional religion Bokonism, which required of its adherents only belief. Vonnegut theorized that groups of people – dubbed a "karass" – would end up working toward a common purpose, unknown to themselves or each other, finding their lives intertwined without any knowledge of the goal they were working towards in common. The world's central bankers have become this karass, meeting and separating and meeting again to solve the quandary of economic crises – without knowing, really, what they are doing, or how it will end. The common threads are there. One paradox Rajan faces as the "Bernanke of India" is that it was Bernanke's relentless stimulus in the US from 2009 to 2012 that contributed to Rajan's current quandary of the falling rupee. As Wells Fargo strategist Sean Lynch noted this week, Bernanke's flood of money into the US financial system pushed interest rates down, forcing rich investors to look far afield for investments that would return some money. Many of them chose to put their money in India – which was a boon for the rupee and Indian trade balances. That was great when times were good and the stimulus was flowing. Over the past few months, however, the talk in the US has turned to cutting down on stimulus. Investors have been looking at returning their money to the US – which has hurt India. Rajan needs to lure that money back and keep it in India. Barclays predicts that Rajan's new plans for stimulus could bring back $10bn to Indian foreign-exchange inflows. Will it work? Rajan, in some ways, has a harder job than Bernanke. Bernanke just had to convince US investors to go along with his stimulus. Rajan has to stem a burgeoning global investment trend and lure foreign money. Read the full article here .
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