Producer prices falls on the softer side – but Harvey effect not factored
August’s PPI figures fell slightly below expectations: rising 0.2% on the month and 2.4% on the year. Stripping out energy and food costs, producer-facing inflation was even lower, suggesting that inflation growth is still well below what the Fed may be looking for in order to have more confidence in raising interest rates. What is notable about the data though, is the lack of impact from Hurricane Harvey. The hurricane reached peak intensity over land on around August 25th, disrupting supply lines and chains for just over a week before dissipating on September 3rd. As we now know, weather conditions worsened even further in the weeks following, so we may see the inflationary impacts of these weather events popping up in September’s, not August’s inflation numbers.
Either way, the dollar’s softened slightly in response to the miss on expectations, allowing EUR/USD to test 1.20 once more.
UK unemployment tells the same old story: more jobs at lower pay
While there are more people in work than there has been for over 40 years, wages have been unable to keep up with the level of inflation and are therefore the majority of the working population is only getting poorer. Wage increases are simply not coming for a multitude of reasons including low productivity, fears over what Brexit may do to individual sectors’ trade relationships and margins cut by higher import costs have all been referenced by companies large and small so far in 2017. This is now the nature of the UK business landscape and shows that these multi-decade lows in joblessness are not something to celebrated.
Even before yesterday’s inflation number we saw little chance that Bank of England policy will shift in favour of higher interest rates until the UK economy is meaningfully creating “good” inflation i.e. from wages. The Bank of England may talk up the prospects of rate hikes tomorrow as they have noted that expectations are too low in their opinion but policy will not shift for many months in our opinion.
The day ahead
Today’s monthly budget statement is unlikely to rock the boat, with the more important events of the session coming after the close: Australia employment change figures will be a big test for the Reserve Bank of Australia, with the unemployment rate expected to hold at 5.6%. This, alongside China’s retail sales and industrial production figures will keep the focus on the other side of the globe.
Have a great day.