Daily Archives: July 16, 2010

James Politi

Federal Reserve officials are clearly divided on the inflation outlook.

Money Supply - click for larger image

Money Supply – click for larger image

The hawks still believe a spike in inflation poses the greatest risk to the US economy, given the easy monetary policy that is in place. Meanwhile, the doves, emboldened by recent poor economic data, are increasingly concerned that the US has entered a disinflationary dynamic that could ultimately result in damaging deflation.

The release of the labor department’s consumer price index for the month of June, unfortunately offers something to nibble on for both camps, but no clear direction on who is right.

In fact, while the year-on-year increase in the core CPI – which strips out volatile food and energy costs – is still stuck at historic lows of 0.9 per cent, the monthly increase of 0.2 per cent was more than expected by economists, suggesting that disinflation may be bottoming out. 

Foreign holdings of US debt rose during May, but only by $0.6bn, the slowest increase since September 2009. Tic data show the UK remains the major buyer of treasuries, with $142bn additional value since the start of the year, nearly five times the purchases of the next biggest buyer, Canada. The rest of the world, in net terms, bought $100bn in that same time period.

A few noteworthy trends reversed in May. China and Japan, between them holding 42 per cent of US treasuries, sold off after months of net purchases. Russia, which had been selling, bought. 

Coming soon to a keyboard near you: the symbol for the Indian currency, approved July 15.

The symbol was chosen from a public competition, which received more than 3,000 entries.