Disinflation forces

Posted by: Paul Donovan

22 May 2020

Daily update

  • Asian equities have fallen on concerns that a Chinese national security law may trigger protests in Hong Kong and further impact Sino-US relations. US President Trump, who has been increasing anti-China rhetoric ahead of the November presidential election, said that the US would react "very strongly" if the measures are passed.
  • US Fed Vice-Chair Clarida (who is an economist) declared that the virus would be a disinflation force, not an inflation force. This is fairly obvious. Unemployment will increase, and the level of GDP is unlikely to return to 2019 levels until late 2021 at the earliest. There will be relative price changes, however. Japan's consumer prices were pushed up by food, and down by oil.
  • The consensus estimates for UK April retail sales (excluding petrol) were from -8.6% y/y to -35.2% y/y. At -18.4% y/y, the number was within the range (good job, economic consensus). Online retail sales will have helped the UK's situation. There is a lot more to consumer spending than just retail sales.
  • We have the ECB minutes from their last meeting. We also hear today from the key economic thought leader, ECB Chief Economist Lane. This crisis remains more a fiscal policy issue than a central bank policy issue.

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