Rapid rate hikes, globally, are failing to introduce enough slack into labour markets to reassure policymakers.
There is a big ‘risk’ that the US jobless rate will remain below the NAIRU throughout 2023. Initial claims dipped 6k to 186k in the w/e January 21st.
This morning’s EC survey corroborated a host of more upbeat sentiment indicators last week: the ‘recovery’ in the Eurozone is gaining some traction. Services confidence improved markedly in January. Employment expectations (over the next three months) are turning higher and expected selling prices across the Eurozone services sector remain near record levels.
The Spanish inflation numbers out this morning are a major warning too. Core inflation (ex-unprocessed food & energy products) accelerated from 6.97% to 7.51% in January. A rush of US and Asian tourists is expected to boost demand in Europe this summer, according to Ryanair chief executive Michael O’Leary.
It is unlikely that any major central bank will be able to cut rates in 2023. The pass through of interest rates to inflation is taking longer than expected.
Ex-fresh food & energy, the Tokyo CPI jumped 0.59% m/m – the most in two years – and the 3-month annualised rate accelerated to 4.40% in January. The BoJ will overshoot its target rate of inflation by some margin this year. It is not clear that markets have fully adjusted to the reality that Japanese monetary policy will have to change, potentially quite drastically.
