Investment Institute

Take Two: US inflation continues to ease; Japan names new central bank governor

  • 20 February 2023 (3 min read)

What do you need to know?

US annual inflation eased for the seventh consecutive month in January, rising 6.4% compared to 6.5% in December. Core inflation, excluding food and energy, rose 5.6%. The improvement was smaller than anticipated and undermined expectations that the Federal Reserve (Fed) may be nearing the end of the tightening cycle. Fed officials said last week that interest rates may need to keep rising, with the strong labour market meaning inflation could remain higher for longer. Elsewhere, UK inflation fell for the third month in a row to 10.1% in January, while the FTSE 100 index reached a new record, closing at 8,012.53 on Thursday – the first time the blue-chip benchmark has closed above 8,000.

Around the world

The Japanese government named economist Kazuo Ueda as its replacement for Bank of Japan (BoJ) Governor Haruhiko Kuroda, who will step down on 8 April. Ueda’s nomination was seen as a surprise and prompted speculation this could signal the end of the bank’s yield curve control policy – designed to suppress medium- term rates but leave longer term yields relatively unaffected, helping protect income for pension funds and other institutional investors. Ueda’s confirmation in the role is likely to be a formality and if successful, he would chair his first BoJ meeting on 27-28 April. Meanwhile, Japan’s fourth quarter (Q4) GDP growth came in at an annualised 0.6%, a rebound from a 1% dip in Q3, but below expectations.

Figure in focus: $1trn

The total value of passenger electric vehicle (EV) sales to date has surpassed $1trn, according to a report from BloombergNEF. It revealed 60% of this spending came from the last 18 months, with annual sales of passenger EVs reaching $388bn in 2022, up 53% from the previous year, and likely to exceed $500bn in 2023. This helped bring global investment in the energy transition in 2022 to $1.1trn – a new record, matching fossil fuel investment for the first time. However, investment will need to increase three-fold in order to achieve net zero targets, the report added.

Words of wisdom:

Supercore inflation: An unconventional and loosely-defined inflation metric which, like core inflation, excludes food and energy prices, but additionally discounts other sectors such as housing – in essence, focusing on price increases when workers get paid more for services. By excluding more volatile sectors, the metric aims to better predict underlying inflation trends. In a recent speech, Fed Chair Jerome Powell suggested core services excluding housing “may be the most important category for understanding the future evolution of core inflation”. While a potentially useful indicator of key inflation drivers, supercore inflation disregards necessary expenses for households, and could inadvertently mask inflation pressures if looked at exclusively.

What’s coming up

On Tuesday, the Reserve Bank of Australia publishes the minutes of its latest monetary policy meeting, while flash Purchasing Managers’ Indices for the Eurozone, Japan, the UK and US are also announced. On Wednesday, the US Federal Open Market Committee issues its own monetary policy meeting minutes, while Germany’s well-observed Ifo Business Climate index is published. Final Eurozone inflation numbers for January are reported on Thursday – the first estimate showed the bloc’s annual inflation rate dropped to 8.5%, an eight-month low, while a second estimate for Q4 US GDP growth is also disclosed. Final Q4 GDP growth numbers for France and Germany are published on Friday.

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