The Week Ahead: Inflation In Focus

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By Greg Peel

There were a lot of raised eyebrows last month when the US CPI number came in at 0% growth for February and the Fed proceeded to slash its rate a further 75bps. The Fed makes its next scheduled rate decision on April 30, and the market is tacitly anticipating another 50bps, give or take. The general euphoria that met the rescue of Bear Stearns and additional Fed lending measures waned somewhat last week as the market began to appreciate there was still some way to go. An IMF announcement that the world is now looking at US$1 trillion in write-downs (there’s been less than US$200bn to date) was sobering, except for the fact the IMF hasn’t got anything right yet.

It looks more and more like Monopoly money every day – a billion here, a trillion there – and it’s reached the point where eyes just glaze over. But it may be enough to justify another Fed cut but for the fact the board has recently stepped up its anti-inflation rhetoric. As to whether the monthly CPI figure can come in at a curious level again this month is a case in point. Recent data has shown another blow-out in the trade deficit due to oil imports, and import price numbers have shown significant surges in everything from food to machinery. The Fed will ignore food & energy of course, even though it’s becoming pretty hard for the rest of America to do so.

By Monday we may learn what was discussed at the G7 finance ministers meeting over the weekend. The Americans would no doubt have been pressuring the Europeans to cut their rate to save the dollar and the Europeans may well have told the Americans perhaps they should stop cutting their own. But if the Fed does cut again this month, will it make any difference? Cuts have become de rigeur, and yet the situation has not really improved in the stock market. It is unlikely there’ll be a reaction of any significance.

Monday in the US sees March retail sales and February business inventories. Tuesday brings the March wholesale inflation number (PPI), the Empire State (NY) manufacturing index for April, and the NAHB housing price index for April. Lots of ammunition there, but it keeps getting better.

Wednesday is March CPI day, along with housing starts and building permits, industrial production and capacity utilisation, and the Fed’s Beige Book – an anecdotal survey of economic conditions. It doesn’t let up on Thursday, with the Philadelphia Fed index, March leading indicators, and weekly jobless claims which have recently taken on a growing importance. Friday, mercifully, is clear.

Ahead of the US CPI, the UK releases its CPI on Tuesday and the EU on Wednesday. The EU follows with its monthly bulletin on Thursday, which will no doubt be all about inflation.

It’s not a big week in Australia, but given the recent spate of disturbing numbers February housing finance should prove interesting on Monday. The RBA releases the minutes of its last (no change) meeting on Tuesday, and economists will be looking for clues as to whether May might still bring another rate rise. On Wednesday Westpac releases its leading economic index for February and on Thursday it’s the RBA monthly bulletin, although one suspects there’ll not be much more to be said. On Friday it’s the first quarter import/export price index – another good inflation indicator.

On the local bourse this week we step up the flow of resource stock March quater production reports, including Rio Tinto ((RIO)) and Oxiana ((OXR)). See the FNArena calendar for details.

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