A disinclination to ease, a reason to tighten
• Annualisation, although popular in the US, is not generally that popular with economists as it exaggerates the underlying data. However it does give a sense of the evolution of a trend, if anomalies are absent. This is relevant, as the core PCE deflator rose from 1% annualised in Q1 to 1.8% annualised in Q2.
• A 1.8% annualised core inflation figure is hardly runaway inflation. At the same time with oil prices likely to add to inflation (consumer level oil prices are rising in the US at the moment), with rising labour costs and with rising retail pricing pressures, it is becoming harder to justify 0% Fed Funds.
• Australia saw strong domestic demand in its GDP, but a weakening of export data. However it was the Reserve Bank policy statement that has attracted attention – changes in the language seem to have downplayed concerns about the currency and removed an easing bias.
• Japanese labour earnings were very weak, but in part this is because of changes in the timing of the summer bonus payments. Nonetheless the trend is less than desirable. Euro area PPI is likely to be negative (commodities weigh more and labour less in PPI than CPI). US NY regional business sentiment data is also due.