Fears of tame inflation – or even deflation – are the main driver of the Federal Reserve’s push towards a new round of quantitative easing, along with the high unemployment rate. And today’s data on producer prices from the labor department, won’t do much to continue its drive towards more asset purchases when officials meet in early November.
The producer price index increased in September by 0.4 per cent, strong beating expectations as higher food and energy prices boosted the headline figure. But the core measure, which matters more to central bankers, rose by only 0.1 per cent, in line with economists’ forecasts.
This is consistent with muted inflationary pressures, and will do little to bolster the hawks on the committee who are arguing for no action next week. Read more
Wonk alert. The ECB has just published a book robustly defending monetary analysis and arguing that, taking a medium time horizon, monetary indicators – whose usefulness has been doubted in recent years – were never really wrong.
“One does not need to rely on exceptional or aberrant behaviour in the financial sector to explain developments in money and credit over the past 18 months,” says an accompanying statement. “Once the prevailing level of economic activity is taken into account, it appears that money and credit have actually behaved in line with pre-crisis regularities.”
Edited by two ECB big cheeses Lucas Papademos and Jürgen Stark, the book is the fruit of three years’ analysis. It comes in two parts: the first, explaining the theory and practice of monetary analysis; the second, containing research into how that analysis can be improved. Don’t expect any sudden changes in the ECB’s monetary analysis, though: the research since 2007 that has gone into this book has already been incorporated into the central bank’s toolkit.
So why publish the book? Read more
Rising food prices are set to push Serbian inflation above target in October, prompting the central bank to raise the key policy rate 50bp to 9.5 per cent. This is the third rate rise by the National Bank of Serbia since it starting raising rates from a record low of 8 per cent in August.
Inflation in September was 7.7 per cent, within its tolerance band of 6.5±2 per cent; next month, however, inflation is projected to rise above its upper limit of 6.3±2 per cent. Read more
Hot money? South Korea isn’t encouraging any more – the central bank on Thursday held its base rate at 2.25 per cent. The decision has surprised Reuters analysts who had expected a 25bp raise.
Bond prices have risen to record highs on the news and the won has also strengthened, though not as much as it would have done had interest rates risen. Read more