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Economy in Brief
U.S. Mortgage Applications Continued to Slide Amid Higher Rates
The biggest declines have been in refinancing activity, while applications for purchase are just starting to crack...
UK Inflation Jumps
Inflation is at the highest rate since the series began in January of 1989...
U.S. Industrial Production Much Stronger than Expected in April
The increase in manufacturing output in April was once again led by motor vehicle and parts production...
U.S. Retail Sales Posted Solid Rise in April
Notwithstanding falling real incomes and declining confidence measures, consumer spending posted a solid increase...
U.S. Home Builder Index Took a Steep Drop in May
This is the fifth straight month that builder sentiment has declined...
Viewpoints
Commentaries are the opinions of the author and do not reflect the views of Haver Analytics.
Profits and Margins Plunge In Q1: Expect More Margin Contraction As Fed Squeezes Inflation
The Many Links of Inflation Cycle: Hard Landing Is Needed to Crack Them
Peak Inflation & Fed Policy: A Relationship Which Should Worry The Fed And Scare Investors
Why Have the Yields on TIPS Been Negative in the Past Two Years?
by Andrew Cates March 1, 2022
Figure 1: Heightened default concerns and a big interest rate response in Russia
The conflict in Ukraine has so far generated a number of predictable responses in financial markets. Aside from a steep plunge in Russia’s ruble and a hike in interest rates to 20% by the central bank, CDS spreads have widened sharply as default risks have escalated. Recent downgrades from credit rating agencies certainly suggest a high probability of a debt default in the period ahead. And the impact of all this on trade, capital flows and confidence is likely to deliver a huge blow to Russia’s economy in the weeks ahead.
As for the impact on the rest of the world the price of oil arguably holds the key. Rising energy prices could lead to stronger price increases in other commodity markets and drive up prices in the food and transportation sector as well, magnifying already intense inflationary pressures.
What will matter for central banks, though, is whether these higher prices generate second-round consequences for wages and for inflation expectations. That seems doubtful, however. Energy prices, after all, are being driven higher by a negative supply shock, not by an overheating world economy. Indeed weaker confidence, financial market instability together with ebbing purchasing power might instead deal a big blow to global growth in the coming weeks. That gauges of market-based inflation expectations have been fairly well-behaved in recent days would suggest that so far investors tend to agree.
Figure 2: Oil prices versus market-based US inflation expectations
Viewpoint commentaries are the opinions of the author and do not reflect the views of Haver Analytics.