I post these numbers so often because an end to disinflation is the goal of QE2 that remains to be achieved. Plenty of analysts anticipate a stabilisation – in particular they expect the large housing component of PCE to stop dragging it down – but there are still only hints of this in the data.
If core PCE continues to drift downward in the next few months to, let’s say, 0.5 per cent in April, then I think there are FOMC members whose instinct would be to go beyond $600bn. Read more
Back to zero for the ECB, as latest data reveal the central bank didn’t buy any government bonds settling last week under the Securities Markets Programme.
Yields on government bonds – which ECB purchases act to depress – remain near record highs in several southern European countries, and in Belgium. In Portugal, in particular, yields remain above the important psychological level of 7 per cent. Read more
Russia has surprised markets by holding rates after a number of bullishhints in recent months. The central bank has, however, raised reserve requirements, joining a long list of emerging markets adopting this as their favoured tightening tool.
Bank Rossii is targeting hot money with the move: it has raised the reserve ratio more sharply for corporate non-residents than for ruble-only, individual or other types of liability. From February 1, banks will have to store 3.5 per cent of non-resident rouble and forex corporate liabilities with the central bank, a 1 percentage point increase. Other types of bank liability – such as those in roubles from individuals – will be raised half a point to 3 per cent. Use the dropdown on the chart below to explore historical reserve requirements at the Bank of Russia.
MPC member Martin Weale’s next vote is unclear, as forthcoming economic data will need to be balanced against the longstanding risk of higher inflation.
In an article for the Guardian, Mr Weale explains his concerns about price rises, saying: “There is a risk that continuing rapid economic development in China and elsewhere will lead to persistent upward pressure on commodity prices,” which could lead to higher inflation expectations. “The cost of a small rise now,” he says, “would be lower than the eventual price of addressing higher ingrained inflation.”
At the last MPC meeting, Mr Weale joined Andrew Sentance in voting for a 25bp rate rise. Shortly thereafter, preliminary UK growth figures suggested the economy shrank in December – a surprise to analysts, economists and journalists alike. A contraction – if sustained – removes much of the basis for a tightening of monetary policy, leaving Mr Weale’s decision seemingly at odds with economic reality.
Central bankers are not fortune-tellers, though, as Mr Weale’s article points out. “Economic policy needs to respond to the facts; to ignore them would be absurd. But how much weight should be placed on the most recent data, which may be erratic and subject to revision?” Some may find Mr Weale’s indecision alarming, but personally it is a relief to see central bankers tussling with so many factors. Their struggle is a sign of their awareness. Read more
Chris Giles has been the economics editor of the Financial Times since 2004. Based in London, he writes about international economic trends and the British economy. Before reporting economics for the Financial Times, he wrote editorials for the paper, reported for the BBC, worked as a regulator of the broadcasting industry and undertook research for the Institute for Fiscal Studies. RSS
Michael Steen, Frankfurt bureau chief, covers the ECB and the eurozone's economies. He joined the Financial Times in 2007 as Amsterdam correspondent and later worked as a front page news editor in London. Before joining the FT, he spent nine years as a correspondent at Reuters, mostly in foreign postings that included a previous stint in Frankfurt, as well as Moscow, Kiev and central Asia. He read German and Russian at Cambridge.RSS
Robin Harding is the FT's US economics editor, based in Washington. Prior to this, he was based in Tokyo, covering the Bank of Japan and Japan's technology sector, and in London as an economics leader writer. Robin studied economics at Cambridge and has a masters in economics from Hitotsubashi University, where he was a Monbusho scholar. Before joining the FT, Robin worked in asset management and banking. RSS
Ralph Atkins, capital markets editor, has been writing for the Financial Times for more than 20 years following an economics degree from Cambridge. From 2004 to 2012, Ralph was Frankfurt bureau chief, watching the European Central Bank and eurozone economies. He has also worked in Bonn, Berlin, Jerusalem and Brussels. RSS
Claire Jones is Money Supply economics team writer, based in London. Before joining the Financial Times, she was the editor of the Central Banking journal and CentralBanking.com. Claire studied philosophy and economics at the London School of Economics. RSS