“Inflation in the UK…”

Inflation in the UK climbed faster than expected last month hitting a new 30-year high.  The Office for National Statistics said that consumer prices rose by 6.2% in February after a 5.5% increase in January, its highest rate since March 1992.  The ONS declared that household energy bills are almost higher by 25% from a year ago and petrol is the biggest driver of February’s price increase.  Furthermore, the ONS said that food prices were rising across the board. Unlike in normal circumstances some prices typically go up whilst others drop.  The ONS also said that consumer prices rose by 0.8% in month-on-month terms, leading to the biggest February increase since 2009.  Inflationary pressures continued to increase as manufacturers increased their prices by 10.1% which is the biggest annual increase since September 2008. 

German Economy

Business activity across the German private sector dropped in March as output price inflation hit a new record high and the war in Ukraine is leaving an impact on demand as well as supply chains, showed a survey on Monday. The German economy started to recover before the war between Russia and Ukraine amid the easing of supply bottlenecks and fewer COVID restrictions.  The S&P Global flash services Purchasing Managers’ Index (PMI) dropped to 55 in March from 55.8 in February, the latter was the highest reading since August.  As a result, the composite PMI that tracks the manufacturing services sectors which together account for more than two-thirds of the German economy, slipped to 54.6 in March from 55.6 in February.  According to Phil Smith, Economics Associate Director at IHS Markit, “The flash MPI surveys point to a fair amount of resilience in activity in March, thanks in most part to the service sector, which has benefited from the easing of restrictions.”  He further added that manufacturing is however, leaving an impact on overall growth as it has more exposure to supply chain disruptions and weaker exports due to sanctions imposed on Russia, said Smith, adding that rising COVID-19 cases in China could further hinder the situation.    

FED Chair Jerome Powell’s Speech

Federal Reserve Chair Jerome Powell on Monday in his message addressed to a National Association for Business Economics conference stated that the central bank must move “expeditiously” to raise interest rates and possibly “more aggressively” to prevent the establishment of an upward price spiral.  He declared that “the labour market is very strong, and inflation is much too high”.  “There is an obvious need to move expeditiously to return the stance of monetary policy to a more neutral level, and then to move to more restrictive levels if that is what is required to restore price stability.”  He further added that “if we conclude that it is more appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so.”   Most FED policymakers see the “neutral” level as somewhere between 2.25% and 2.5%.  Powell also repeated that the FED’s reductions in its balance sheet could start by May, a process that could further tighten financial conditions.  Meanwhile, data shows that the US unemployment rate is currently at 3.8% and per-person job vacancies are at a record high, a combination that is pushing up wages faster than is sustainable.  Powell further added that “there is excess demand” adding that “in principle” less accommodative monetary policy could reduce pressure in the labour market and help stabilise inflation without pushing up unemployment, generating a “soft landing” rather than a recession.  Inflation is three times the 2% goal pushed upward by supply chain problems that have taken longer to fix than most had expected and that could get worse if China implements lockdowns to combat new COVID-19 cases.  Meanwhile the war in Ukraine is further pushing prices up with the price of oil further threating to move inflation even higher.     

US Weekly Jobless Claims

New applications for US jobless benefits dropped to a 52 ½ year low last week.  Initial claims for state unemployment benefits dropped by 28,000 to a seasonally adjusted 187,000 for the week ended 19 March, the lowest level since September, 1969, said the Labour Department on Thursday.  Claims dropped from a record high of 6.149 million in early April 2020.  So far there are no indications that the Labour market will be impacted by the war against Ukraine.  Companies need workers.  In fact, there were 11.3 million job openings at the end of January, with a record 1.8 open positions per unemployed person.  The misalignment between the demand for labour and supply is boosting wage growth.  The latter is providing some protection to households from the soaring gasoline prices.  

The Bond Market

The treasury market is increasing pointing to risk of a recession amid its sharp moves.  Monday saw the 10-year benchmark note (US10YT) up to a yield of 2.298% from 2.153% on Friday which is the highest since May 2019.  The two-year Treasuries (US2YT) which closely reflect monetary policy expectations jumped to 2.111% from the 1.942% on Friday.  The closely watched part of the yield curve that is measured by the 2 year and the 10-year Treasury (US2US10) has narrowed by about 60 basis points since the start of the year, with the longer-dated notes now yielding less than 20 basis points more than the two-year debt.  When shorter notes yield more than longer ones, this generally indicates a recession by six to 24 months.  When on Monday Powell was asked about concerns on what the yield curve is saying, he stated that he focused on the short end of the curve, meaning the first 18 months of maturities.  Meanwhile, another part of the curve, which compares the three-month bills with 10-year notes (US3MUS10Y) has steepened this year, from 145 basis points on 31 December to 181.54 basis points on Monday.  On Tuesday, the 2-year, 5-year, 10-year and 30-year yields which increase when prices drop, climbed to their highest since 2019.  The ten-year yields are also below the 3and 5year yields inverting part of the curve on expectations that hikes could hurt growth.  The closely watched 2year and 10-year spread has narrowed to just 16 basis points.  The two-year yield rose as much as 7.4 bps to 2.192% its highest since May 2019.  The rate has climbed for eight months in a row and has increased 74 bps so far in March.  Meanwhile the benchmark 10-year yields rose 4.5bps to 2.3420%.  Such moves unsettled markets in general, impacting those sensitive sectors such as technology. Wednesday saw the US Treasury curve flattening further as the Federal Reserve increased interest rates for the first time in three years.  The yield curve is an important metric that impacts other asset prices, effects banks’ returns and give an indication of how the economy will fare.

Oil Prices

Oil prices jumped by more than $6 on Monday, with Brent crude climbing above $114 a barrel, as EU nations are considering joining the US in a Russian oil embargo and after a weekend attack on Saudi oil facilities.  Brent crude futures were up by 6% at $114.45 a barrel adding to the 1.2% increase on Friday while US West Texas Intermediate (WTI) crude futures rose 5.6% to $110.60.  Prices moved higher ahead of talks between EU governments and US President Joe Biden in a series of summits aiming to make the West’s response to the Moscow invasion on Ukraine harsher.  In view that are no signs of conflicts easing, options are being considered whether the market would be able to replace Russian barrels hit by sanctions. Furthermore, oil prices are sensitive to the possibility of Hong Kong lifting COVID-19 restrictions, that could increase demand. Meanwhile, German Economy Minister Robert Habeck added his voice to Western appeals for OPEC to increase oil production and said Gulf states should not profit from global sanctions against Russia over its invasion of Ukraine.  Saudi Arabia and the UAE have resisted Western calls, including from the US, to use their spare oil capacity to control price increases as the conflict increased concerns of supply disruptions.  On Tuesday, oil climbed to $116 a barrel, adding to the 7% surge from the previous day, supported by supply risks arising from a potential EU oil embargo on Russia and attacks on Saudi oil facilities.  Brent crude rose 0.2% to $115.88 a barrel while US West Texas Intermediate crude slipped 10 cents to $112.02.  The dollar got stronger on comments from the US Federal Reserve Chair Jerome Powell on Monday putting more pressure on oil.  A strong dollar makes crude more costly for other currency holders and tends to influence risk appetite. 

Malta:  Inbound Tourism for January 2022

The total inbound visitors for January 2022 were estimated at 59,928. Polish and Italian residents made up 23.1% of total inbound tourists.  Total tourist expenditure almost reached EUR 47 million with the average expenditure per night was estimated at EUR 81.4. 

Malta:  Harmonised Index of Consumer Prices (HICP) – February, 2022

In February 2022, the annual rate of inflation as measured by the HICP was 4.2% up from 4.1% in January 2022.  The largest upward impact on annual inflation was measured in the Food and non-alcoholic beverages index (+1.5%) while a decline was recorded in the Communications Index (-0.06%).  The HICP measures monthly price changes in the cost of purchasing a representative basket of consumer goods and services.  The HICP is calculated according to rules specified in a series of European Union regulations that were developed by Eurostat together with EU Member States. The HICP is used to compare inflation rates across the EU. 

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