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Fed’s Favorite Lowball Inflation Gauge is Red-Hot, Not Seen in Decades, Even Without the “Base Effect”

Fed’s Favorite Lowball Inflation Gauge is Red-Hot, Not Seen in Decades, Even Without the “Base Effect”

The majestic inflation overshoot has arrived.

The Fed’s favorite inflation measure, generally the lowest inflation measure the US government provides — tracking a lot lower than even the Consumer Price Index which already understates actual inflation — and therefore our lowest lowball inflation measure, and therefore the Fed’s favorite inflation measure, was released this morning, and it was a doozie, despite being the most understated inflation measure the US has so far come up with.

The Personal Consumption Expenditures Price index without food and energy, the “core PCE” index, jumped by 0.7% in April from March, after having jumped by 0.4% in March from February, according to the Bureau of Economic Analysis today. Those two months combine into an annualized core PCE inflation rate of 6.4%, meaning that if price-increases continue for 12 months at the pace of the past two months, then the annual inflation would be 6.4% as measured by the lowest lowball measure the US has.

This was the highest two-months annualized rate since 1985. And it shows to what extent inflation has suddenly heated up in March and April.

Over the past three months – so April, March, and February – the annualized increase of core PCE inflation was 4.9%, the highest since 1990.

The annualized PCE index eliminates the legitimate issue of the “Base Effect” that is now getting trotted out to brush off the inflation data (I discussed the Base Effect in early April to prepare for what would be coming).

The Base Effect applies only to year-over-year comparisons. In March last year, the core PCE price index dipped by 0.1% from February, and in April it dipped by 0.4% from March. So comparing today’s PCE index to that dip in April (the lower “base”) would include the Base Effect.

…click on the above link to read the rest of the article…

 

The Disturbing Reasons Why The Bank Of Japan Stunned Everyone With Negative Rates

The Disturbing Reasons Why The Bank Of Japan Stunned Everyone With Negative Rates

As we noted earlier, in a paradoxical U-turn, one which caught everyone by surprise as a result of Kuroda’s own promise just one week ago not to engage in NIRP

… and two months after the ECB’s December 3 disappointing announcement led to a historic surge in the EUR, today countless macro hedge funds have been left reeling with huge losses once again, as many had recently turned bullish on the Yen…

… only to be eviscerated by the BOJ’s negative rates announcement.

So what happened? Reuters has an amusing take, one which we doubt many macro HFs will find quite entertaining:

Bank of Japan Governor Haruhiko Kuroda used classic shock tactics on Friday to push through his latest unconventional monetary policy of negative rates: deny, then strike.

The paradox, of course, is that by “striking”, Kuroda slammed precisely those who were meant to benefit the most from the BOJ’s action: financial institutions. To be sure, it is not just hedge funds who will be left reeling but Japanese banks themselves, because as a result of negative rates, their NIM will go horizontal and lead to even more pronounced losses, something European banks – such as Deutsche Bank – have discovered the hard way over the past year and a half.

There are other problems with the BOJ’s seemingly chaotic, if not panicked, decision: as Reuters adds, “a razor-thin 5-4 vote underscores the difficulty Kuroda had in winning enough board backing for his shock tactic, and illustrates the doubts among board members about the governor’s line that by sticking to a 2 percent inflation goal the BOJ can make people believe prices will rise.”

…click on the above link to read the rest of the article…

Italy Youth Unemployment Hits Record High 44.2%, Concerns Rising “Recession Exit May Be Unsustainable”

Italy Youth Unemployment Hits Record High 44.2%, Concerns Rising “Recession Exit May Be Unsustainable”

Earlier today, Eurostat released the two most important data points for Europe: inflation and unemployment. On the former,  there was no surprise at the headline level which remained at 0.2% for the another month, in line with expectations, but core CPI excluding energy, food, alcohol and tobacco, rose to 1.0%, the highest print in 2015 and one which pushed Bund prices well lower.

But it was the unemployment number which showed something unexpected. While the overall unemployment rate for the Eurozone also stayed unchanged at 11.1%, fractionally worse then the consensus estimate of a decline to 11.0%…

… it was renewed concern about what is going on in Italy, where unemployment rose from 12.5% to 12.7%, proving consensus expectations about a strong improvement to 12.3% dead wrong…

… and posing a question just what is going on in the country with the biggest debt load in Europe, and more importantly how is it that Rome is still unable to benefit from the ECB’s QE which has pushed Italian yields far below those of the US despite an economy which is suddenly taking on water.

And nowhere was this more visible than in Italy’s youth unemployment rate, which surprisingly jumped by nearly 2% to 44.2%, a record level, and one which is starting to rival some of Europe’s most troubled nations, such as Spain and of course Greece.

As Bloomberg put it, “Italy’s jobless rate unexpectedly rose in June as businesses continue to dismiss workers amid concerns that the country’s exit from recession may not be sustainable. Youth unemployment jumped to a record-high 44.2 percent.

Unemployment increased to 12.7 percent from a revised 12.5 percent in May, statistics agency Istat said in a preliminary report in Rome on Friday. The median estimate in a survey of nine analysts called for a rate of 12.3 percent.

Youth unemployment in June rose to the highest rate since the series began in 2004, from 42.4 percent in May. Employment dropped for a second month in a row, with about 22,000 jobs lost in June alone, according to the report.

…click on the above link to read the rest of the article…

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