Economy
NY Fed data shows underlying inflation may be slower than thought
© Reuters. FILE PHOTO: The Federal Reserve building is pictured in Washington, U.S., on March 19, 2019. REUTERS/Leah Millis/File Photo
By Howard Schneider
WASHINGTON (Reuters) – New data from the New York Federal Reserve shows underlying inflation may have slowed faster than the headline measures that have kept U.S. central bank officials poised for further interest rate increases.
In a research series that is now due for monthly release, the New York Fed’s so-called “multivariate core trend” measure of inflation stood at 3.5% in May, far lower than the 4.6% rate of increase for the personal consumption expenditures price index stripped of its volatile food and energy components.
A 68% probability band puts the number at near 3% at the low end, with the highest point still below 4%, possible evidence that prices may be moving more steadily towards the Fed’s 2% target than thought.
The New York Fed core trend also factors out the food and energy items that central bankers try to look beyond in assessing the direction of inflation. But it goes a step further and tries to filter out temporary shocks or price influences across the full spectrum of goods and services — such as the outsized demand for autos and other goods at the start of the pandemic.
The resulting model “gives more weight to sectors that have relatively few transitory shocks and less weight to sectors that have large amounts of noise,” New York Fed staffers wrote in a short blog post describing the research series, which is due to be updated monthly on the Tuesday after the release of each month’s PCE inflation data.
As examples they cite motor vehicles as a category that tends to be more susceptible to fleeting up and down price movements, and were also a key driver of early pandemic inflation.
Housing, the staffers noted, is by contrast one of the “high signal value” items that gets more weight in the model and has recently been pulling the New York Fed’s index lower than the headline core PCE number. That’s because recent data on rents, which have been moderating, gets incorporated faster into the New York Fed’s estimates.
From a monetary policy perspective, the new estimate could add fodder to arguments for being more cautious about further rate increases. Some policymakers have been concerned that the main measure of core inflation has shown little improvement; the New York Fed’s alternate measure suggests that may be the result of temporary factors rather than a more persistent trend.
The Fed, after holding rates steady at its June meeting, is expected to increase the benchmark policy rate by another quarter of a percentage point at its next meeting, with officials concerned about the slow progress of inflation back towards the 2% goal.
© Reuters. Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov/File Photo
MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.
The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.
Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.
“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.
Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.
“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.
The bank will next convene to set its benchmark rate on Feb. 16.
The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.
© Reuters. FILE PHOTO: Workers walk past an under-construction area with completed office towers in the background, in Shenzhen’s Qianhai new district, Guangdong province, China August 25, 2023. REUTERS/David Kirton/File Photo
SHANGHAI (Reuters) – China’s top planning body said on Saturday it had identified a second batch of public investment projects, including flood control and disaster relief programmes, under a bond issuance and investment plan announced in October to boost the economy.
With the latest tranche, China has now earmarked more than 800 billion yuan of its 1 trillion yuan ($140 billion) in additional government bond issuance in the fourth quarter, as it focuses on fiscal steps to shore up the flagging economy.
The National Development and Reform Commission (NDRC) said in a statement on Saturday it had identified 9,600 projects with planned investment of more than 560 billion yuan.
China’s economy, the world’s second largest, is struggling to regain its footing post-COVID-19 as policymakers grapple with tepid consumer demand, weak exports, falling foreign investment and a deepening real estate crisis.
The 1 trillion yuan in additional bond issuance will widen China’s 2023 budget deficit ratio to around 3.8 percent from 3 percent, the state-run Xinhua news agency has said.
“Construction of the projects will improve China’s flood control system, emergency response mechanism and disaster relief capabilities, and better protect people’s lives and property, so it is very significant,” the NDRC said.
The agency said it will coordinate with other government bodies to make sure that funds are allocated speedily for investment and that high standards of quality are maintained in project construction.
($1 = 7.1315 renminbi)
© Reuters. Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov/File Photo
MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.
The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.
Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.
“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.
Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.
“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.
The bank will next convene to set its benchmark rate on Feb. 16.
The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.
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