Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051101e.jpg" width="353">
Inflation in Indonesia rose almost 18% in October largely as a result of government action on October 1, reducing subsidies on petroleum related products. Kerosene prices, for example, almost tripled and diesel prices doubled. The hardest hit components of the consumer price index were transportation and communication, showing a year-over-year rise of almost 45% and foodstuffs, 18%. The first chart shows the year-over-year change in the total index and in the transportation and communication component.
A major reason for the government&#39;s action in reducing the subsidies was the growing cost and its impact on the budget balance. In the first nine months of this year expenditures were about 20% above those of the corresponding period of last year. This increase follows one of 16.2% for all of 2004 and 14.5% for 2002 and only 1.3% for 2001.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051101f.jpg" width="353">
Following the announcement of the spike in inflation, the Central Bank raised the one month bill rate 125 basis points from 11% to 12.25%. The real base interest rate (nominal value less the rate of inflation) is shown in the second chart. The real rate has declined substantially over the past five years, from 12% in 2000 to zero or slightly negative values in several recent months. The October real rate is almost -7% in spite of the hefty rise in the nominal rate.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/EMERGEPR/@P7/@P7.HTM">Indonesia</a></th>
<th scope="col">Oct 05&nbsp;</th>
<th scope="col">Sep 05</th>
<th scope="col">Oct 04</th>
<th scope="col">M/M&nbsp; %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2004&nbsp; </th>
<th scope="col">2003 &nbsp;</th>
<th scope="col">2002&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Price Index (2002=100)</td>
<td>136.16</td>
<td>125.23</td>
<td>115.20</td>
<td>8.73</td>
<td>17.90</td>
<td>6.06</td>
<td>6.79</td>
<td>11.91</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Foodstuffs</td>
<td>128.58</td>
<td>120.84</td>
<td>108.97</td>
<td>6.41</td>
<td>18.00</td>
<td>5.89</td>
<td>0.90</td>
<td>11.21</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Transportation and&nbsp;&nbsp;&nbsp; Communication</td>
<td>164.61</td>
<td>127.40</td>
<td>113.73</td>
<td>29.21</td>
<td>44.74</td>
<td>4.78</td>
<td>6.95</td>
<td>17.61</td>
</tr>
</tbody>
</table>
</body>
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Inflation in Indonesia rose almost 18% in October largely as a result of government action on October 1, reducing subsidies on petroleum related products. Kerosene prices, for example, almost tripled and diesel prices doubled. The [...]

Inflation Surges in Indonesia after Government Reduced Fuel Subsidies

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051101g.jpg" width="353">
The Federal Open Market Committee&#39;s unanimous decision to increase the target rate for federal funds 25 basis points to 4.00% was widely expected by analysts. The discount rate also was raised 25 basis points to 5.00%. This latest increase was the twelfth since June of 2004.
Today&#39;s press release from the Fed focused on the effects of higher energy prices. &quot;Elevated energy prices and hurricane-related disruptions in economic activity have temporarily depressed output and employment.&quot;
The FOMC statement further indicated, as it did in September, that &quot;The cumulative rise in energy and other costs have the potential to add to inflation pressures ...&quot;
For the complete text of the Fed&#39;s latest press release please click <a href="http://www.federalreserve.gov/boarddocs/press/monetary/2005/20051101/default.htm">here</a>.
Implementing Monetary Policy, a March 2005 speech by then Fed Governor Ben S. Bernanke is available <a href="http://www.federalreserve.gov/boarddocs/speeches/2005/20050330/default.htm"> here</a>.

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The Federal Open Market Committee's unanimous decision to increase the target rate for federal funds 25 basis points to 4.00% was widely expected by analysts. The discount rate also was raised 25 basis points to 5.00%. This latest [...]

Fed Funds Rate Raised to 4.00% and Going Higher?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051101h.jpg" width="353">
The value of construction put in place matched Consensus expectations for the second month in a row and rose 0.5% in September following an upwardly revised 0.6% gain in August.
Private building activity increased 0.6%. Residential building jumped 1.0% as new single family building surged 1.4% (10.5% y/y) though the value of residential improvements fell 0.2% (-1.0% y/y), the seventh consecutive monthly decline.
Nonresidential building activity fell 0.3% after a 2.1% spike in August due to less commercial sector spending where auto industry outlays fell 4.4% (+9.6% y/y). Office construction surged 3.8% (12.2% y/y) after upwardly revised, small gains in the prior three months.
Public construction spending fell slightly due to a 0.9% (+19.7% y/y) decline in construction activity on highways &amp; streets, nearly one third of the value of public construction spending.
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E907/@E90701/@E90701.HTM">Construction Put-in-place</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.5%</td>
<td>0.6%</td>
<td>6.8%</td>
<td>10.9%</td>
<td>5.4%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>0.6%</td>
<td>0.7%</td>
<td>6.2%</td>
<td>13.6%</td>
<td>6.3%</td>
<td>-0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>1.0%</td>
<td>0.1%</td>
<td>8.2%</td>
<td>18.2%</td>
<td>12.9%</td>
<td>8.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-0.3%</td>
<td>2.1%</td>
<td>1.4%</td>
<td>3.9%</td>
<td>-5.4%</td>
<td>-13.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>-0.0%</td>
<td>0.4%</td>
<td>9.0%</td>
<td>2.5%</td>
<td>2.7%</td>
<td>5.7%</td>
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</tbody>
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The value of construction put in place matched Consensus expectations for the second month in a row and rose 0.5% in September following an upwardly revised 0.6% gain in August. Private building activity increased 0.6%. Residential [...]

U.S. Construction Spending Rose Further

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051101b.jpg" width="353">
The October Composite Index of activity in the manufacturing sector remained unexpectedly firm at 59.1, reported the Institute of Supply Management (ISM). The modest decline from 59.4 in September contrasted with Consensus expectations for a drop to 57.0. The last two months have been the highest for the index since the Summer of last year.
During the last twenty years there has been a 64% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051101c.jpg" width="353">
Three of the index&#39;s five components fell in October. New orders gave back 2.1 of the 7.4 point September rise but remained at the second highest level of the year. Production gave back just 1.1 of the 7.2 point spike in September, also to remain at the second highest level of 2005 and inventories also fell to the middle of recent months&#39; range.
Job creation in the factory sector improved as indicated by a rise in the employment index to the highest level since February. During the last twenty years there has been a 67% correlation between the level of the ISM Employment Index and the three month growth in factory sector employment.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051101d.jpg" width="353">
The vendor deliveries index, indicating that the pace of vendor deliveries slowed, rose 2.4 points on top of an 8.8 point September rise to the highest level in over one year. During the last ten years there been an 82% correlation between the index and the three month change in the core PPI for intermediate materials.
Improved pricing power in the factory sector was further indicated by a 6.0 point rise in the prices paid index to the highest level since May of last year. Seventy percent of those surveyed indicated success in raising prices, the highest since May &#39;04, while just two percent reported lower prices. From the ISM&#39;s latest Report of Business, respondents indicated &quot;We are seeing an increase in the number of chemical products being placed on allocation and order control.&quot; (Chemicals), &quot;Concern over the price of oil and its effect on the future prices of commodities. Existing inventories are being depleted and we are seeing some significant price increases in some commodities.&quot; (Electronic Components &amp; Equipment), &quot;Most price increase letters I have ever seen.&quot; (Instruments &amp; Photographic Equipment) and &quot;Refrigerated freight a significant issue - unable to find available trucks. Sugar prices are skyrocketing.&quot; (Food)
The Global Saving Glut and the U.S. Current Account Deficit, an April 2005 speech by then Fed Governor Ben S. Bernanke is available <a href="http://www.federalreserve.gov/boarddocs/speeches/2005/20050414/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF02/@EF02.HTM">ISM Manufacturing Survey</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Oct &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>59.1</td>
<td>59.4</td>
<td>57.5</td>
<td>60.5</td>
<td>53.3</td>
<td>52.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>61.7</td>
<td>63.8</td>
<td>59.3</td>
<td>63.5</td>
<td>57.9</td>
<td>56.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>84.0</td>
<td>78.0</td>
<td>78.5</td>
<td>79.8</td>
<td>59.6</td>
<td>57.6</td>
</tr>
</tbody>
</table>
</body>
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The October Composite Index of activity in the manufacturing sector remained unexpectedly firm at 59.1, reported the Institute of Supply Management (ISM). The modest decline from 59.4 in September contrasted with Consensus [...]

ISM Index Firmer Than Expected, Pricing Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051101a.jpg" width="353">
Lower gasoline prices helped raise spending at chain stores. Last week, the retail average price of regular gasoline in the U.S. fell 12 cents for the second consecutive week to $2.48 per gallon (+21.9 y/y). Since the early September peak of $3.07, retail prices are down 19.2% and a 12 cent decline in yesterday&#39;s spot market price for gasoline suggests another drop this week. 
With a 0.4% rise at the end of October, chain store sales rose for the fifth time in the last six weeks according to the International Council of Shopping Centers (ICSC)-UBS survey. The gains were enough to pull the month&#39;s average sales level up 0.1% from September which fell 1.7% from August. 
During the last ten years there has been a 56% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of non-auto retail sales less gasoline.
The leading indicator of chain store sales from ICSC was unchanged w/w during the latest week (-2.2% y/y) following a 0.9% spurt the prior week.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
Oil Price Shocks and Inflation from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-28.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">10/29/05</th>
<th scope="col">10/22/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>451.6</td>
<td>449.7</td>
<td>4.4%</td>
<td>4.6%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


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Lower gasoline prices helped raise spending at chain stores. Last week, the retail average price of regular gasoline in the U.S. fell 12 cents for the second consecutive week to $2.48 per gallon (+21.9 y/y). Since the early September [...]

Chain Store Sales Finish October Firm as Gasoline Prices Decline

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051101g.jpg" width="353">
The Federal Open Market Committee&#39;s unanimous decision to increase the target rate for federal funds 25 basis points to 4.00% was widely expected by analysts. The discount rate also was raised 25 basis points to 5.00%. This latest increase was the twelfth since June of 2004.
Today&#39;s press release from the Fed focused on the effects of higher energy prices. &quot;Elevated energy prices and hurricane-related disruptions in economic activity have temporarily depressed output and employment.&quot;
The FOMC statement further indicated, as it did in September, that &quot;The cumulative rise in energy and other costs have the potential to add to inflation pressures ...&quot;
For the complete text of the Fed&#39;s latest press release please click <a href="http://www.federalreserve.gov/boarddocs/press/monetary/2005/20051101/default.htm">here</a>.
Implementing Monetary Policy, a March 2005 speech by then Fed Governor Ben S. Bernanke is available <a href="http://www.federalreserve.gov/boarddocs/speeches/2005/20050330/default.htm"> here</a>.

ISM Index Firmer Than Expected, Pricing Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 1, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051101b.jpg" width="353">
The October Composite Index of activity in the manufacturing sector remained unexpectedly firm at 59.1, reported the Institute of Supply Management (ISM). The modest decline from 59.4 in September contrasted with Consensus expectations for a drop to 57.0. The last two months have been the highest for the index since the Summer of last year.
During the last twenty years there has been a 64% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051101c.jpg" width="353">
Three of the index&#39;s five components fell in October. New orders gave back 2.1 of the 7.4 point September rise but remained at the second highest level of the year. Production gave back just 1.1 of the 7.2 point spike in September, also to remain at the second highest level of 2005 and inventories also fell to the middle of recent months&#39; range.
Job creation in the factory sector improved as indicated by a rise in the employment index to the highest level since February. During the last twenty years there has been a 67% correlation between the level of the ISM Employment Index and the three month growth in factory sector employment.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051101d.jpg" width="353">
The vendor deliveries index, indicating that the pace of vendor deliveries slowed, rose 2.4 points on top of an 8.8 point September rise to the highest level in over one year. During the last ten years there been an 82% correlation between the index and the three month change in the core PPI for intermediate materials.
Improved pricing power in the factory sector was further indicated by a 6.0 point rise in the prices paid index to the highest level since May of last year. Seventy percent of those surveyed indicated success in raising prices, the highest since May &#39;04, while just two percent reported lower prices. From the ISM&#39;s latest Report of Business, respondents indicated &quot;We are seeing an increase in the number of chemical products being placed on allocation and order control.&quot; (Chemicals), &quot;Concern over the price of oil and its effect on the future prices of commodities. Existing inventories are being depleted and we are seeing some significant price increases in some commodities.&quot; (Electronic Components &amp; Equipment), &quot;Most price increase letters I have ever seen.&quot; (Instruments &amp; Photographic Equipment) and &quot;Refrigerated freight a significant issue - unable to find available trucks. Sugar prices are skyrocketing.&quot; (Food)
The Global Saving Glut and the U.S. Current Account Deficit, an April 2005 speech by then Fed Governor Ben S. Bernanke is available <a href="http://www.federalreserve.gov/boarddocs/speeches/2005/20050414/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF02/@EF02.HTM">ISM Manufacturing Survey</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Oct &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>59.1</td>
<td>59.4</td>
<td>57.5</td>
<td>60.5</td>
<td>53.3</td>
<td>52.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>61.7</td>
<td>63.8</td>
<td>59.3</td>
<td>63.5</td>
<td>57.9</td>
<td>56.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>84.0</td>
<td>78.0</td>
<td>78.5</td>
<td>79.8</td>
<td>59.6</td>
<td>57.6</td>
</tr>
</tbody>
</table>
U.S. Construction Spending Rose Further  
by <a href="/comment/Moeller.html">Tom Moeller</a>  November 1, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051101h.jpg" width="353">
The value of construction put in place matched Consensus expectations for the second month in a row and rose 0.5% in September following an upwardly revised 0.6% gain in August.
Private building activity increased 0.6%. Residential building jumped 1.0% as new single family building surged 1.4% (10.5% y/y) though the value of residential improvements fell 0.2% (-1.0% y/y), the seventh consecutive monthly decline.
Nonresidential building activity fell 0.3% after a 2.1% spike in August due to less commercial sector spending where auto industry outlays fell 4.4% (+9.6% y/y). Office construction surged 3.8% (12.2% y/y) after upwardly revised, small gains in the prior three months.
Public construction spending fell slightly due to a 0.9% (+19.7% y/y) decline in construction activity on highways &amp; streets, nearly one third of the value of public construction spending.
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E907/@E90701/@E90701.HTM">Construction Put-in-place</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.5%</td>
<td>0.6%</td>
<td>6.8%</td>
<td>10.9%</td>
<td>5.4%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>0.6%</td>
<td>0.7%</td>
<td>6.2%</td>
<td>13.6%</td>
<td>6.3%</td>
<td>-0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>1.0%</td>
<td>0.1%</td>
<td>8.2%</td>
<td>18.2%</td>
<td>12.9%</td>
<td>8.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-0.3%</td>
<td>2.1%</td>
<td>1.4%</td>
<td>3.9%</td>
<td>-5.4%</td>
<td>-13.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>-0.0%</td>
<td>0.4%</td>
<td>9.0%</td>
<td>2.5%</td>
<td>2.7%</td>
<td>5.7%</td>
</tr>
</tbody>
</table>
Chain Store Sales Finish October Firm as Gasoline Prices Decline 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 1, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051101a.jpg" width="353">
Lower gasoline prices helped raise spending at chain stores. Last week, the retail average price of regular gasoline in the U.S. fell 12 cents for the second consecutive week to $2.48 per gallon (+21.9 y/y). Since the early September peak of $3.07, retail prices are down 19.2% and a 12 cent decline in yesterday&#39;s spot market price for gasoline suggests another drop this week. 
With a 0.4% rise at the end of October, chain store sales rose for the fifth time in the last six weeks according to the International Council of Shopping Centers (ICSC)-UBS survey. The gains were enough to pull the month&#39;s average sales level up 0.1% from September which fell 1.7% from August. 
During the last ten years there has been a 56% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of non-auto retail sales less gasoline.
The leading indicator of chain store sales from ICSC was unchanged w/w during the latest week (-2.2% y/y) following a 0.9% spurt the prior week.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
Oil Price Shocks and Inflation from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-28.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">10/29/05</th>
<th scope="col">10/22/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>451.6</td>
<td>449.7</td>
<td>4.4%</td>
<td>4.6%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
Inflation Surges in Indonesia after Government Reduced Fuel Subsidies  
by <a href="/comment/Curley.html">Louise Curley</a> November 1, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051101e.jpg" width="353">
Inflation in Indonesia rose almost 18% in October largely as a result of government action on October 1, reducing subsidies on petroleum related products. Kerosene prices, for example, almost tripled and diesel prices doubled. The hardest hit components of the consumer price index were transportation and communication, showing a year-over-year rise of almost 45% and foodstuffs, 18%. The first chart shows the year-over-year change in the total index and in the transportation and communication component.
A major reason for the government&#39;s action in reducing the subsidies was the growing cost and its impact on the budget balance. In the first nine months of this year expenditures were about 20% above those of the corresponding period of last year. This increase follows one of 16.2% for all of 2004 and 14.5% for 2002 and only 1.3% for 2001.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051101f.jpg" width="353">
Following the announcement of the spike in inflation, the Central Bank raised the one month bill rate 125 basis points from 11% to 12.25%. The real base interest rate (nominal value less the rate of inflation) is shown in the second chart. The real rate has declined substantially over the past five years, from 12% in 2000 to zero or slightly negative values in several recent months. The October real rate is almost -7% in spite of the hefty rise in the nominal rate.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/EMERGEPR/@P7/@P7.HTM">Indonesia</a></th>
<th scope="col">Oct 05&nbsp;</th>
<th scope="col">Sep 05</th>
<th scope="col">Oct 04</th>
<th scope="col">M/M&nbsp; %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2004&nbsp; </th>
<th scope="col">2003 &nbsp;</th>
<th scope="col">2002&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Price Index (2002=100)</td>
<td>136.16</td>
<td>125.23</td>
<td>115.20</td>
<td>8.73</td>
<td>17.90</td>
<td>6.06</td>
<td>6.79</td>
<td>11.91</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Foodstuffs</td>
<td>128.58</td>
<td>120.84</td>
<td>108.97</td>
<td>6.41</td>
<td>18.00</td>
<td>5.89</td>
<td>0.90</td>
<td>11.21</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Transportation and&nbsp;&nbsp;&nbsp; Communication</td>
<td>164.61</td>
<td>127.40</td>
<td>113.73</td>
<td>29.21</td>
<td>44.74</td>
<td>4.78</td>
<td>6.95</td>
<td>17.61</td>
</tr>
</tbody>
</table>


</html>

Falling oil prices aren't pulling down inflation expectations, pointing to a boost from increased tariffs

Equity market exuberance outpacing macroeconomic data

Apart from Japan, Blue Chip forecasters expect further sizable monetary easing

US production rebounded in Q2, but demand continued to slow

US leader, Germany trailer for real GDP growth over past 3 years

Negative US inflation surprises leading G10 down

Deflation continues in China

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

With escalation of Israel/Iran conflict, geopolitical risk has recently surged while US trade policy uncertainty has ebbed

Renewed supply chain pressures point to a rebound in global inflation ahead

Apart from Japan, Blue Chip forecasters look for further significant monetary policy easing

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

US tariff revenues nearly doubled in April

Even with expected tariff-induced increases in inflation, BCFF forecasters look for a more aggressive round of monetary easing

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

Wage growth slowing in the US and Euro area; elevated and sticky in the UK

Stagflation-lite: Blue Chip forecasts below-trend growth and elevated inflation

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

US and Japan ended 2024 on solid ground in contrast to Europe

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Mortgage applications fell 1.4% (+22.7% y/y) in the week ending August 15 after rising 10.9% in the prior week, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. Applications for purchase loans edged 0.1% higher (22.7% y/y) last week, following a 1.4% gain in the prior week. Applications to refinance a home loan fell 3.1% (+22.8% y/y) last week, following a 23.0% rise in the week of August 8.

The effective interest rate on a 30-year fixed-rate loan held steady at 6.86% in the week ending August 15 after falling from 6.94% in the first week of August. It was the lowest rate since the first week of March, down from a high of 7.28% in the second week of January. The rate on 15-year fixed-rate mortgages rose to 6.13% in the latest week from 6.09% in the week of August 8. Conversely, the rate on 30-year Jumbo loans decreased to 6.82% last week from 6.86% one week earlier. The rate on a 5-year ARM rose to 6.24% in the week of August 15 and reversed the prior week’s decline to 6.05%.

The share of applications for refinancing an existing loan eased to 46.1% of total applications in the week ending August 15 after rising to 46.5% in the prior week. The share hit a low of 34.6% in the fourth week of May. The adjustable-rate mortgage (ARM) share of activity declined to 8.60% in the latest week after rising to 9.60% in the week of August 8.

The average size of a mortgage loan fell 2.7% (+4.1% y/y) to $387,800 in the week of August 15, following a 4.5% rise in the prior week. The average size of a purchase loan edged 0.5% higher (0.6% y/y) to $429,000 in the latest week after falling 1.2% in the week ending August 8. The average size of a loan to refinance a mortgage fell 7.3% (+9.5% y/y) to $339,800 last week, after rising 18.3% to $366,400 in the prior week. It was increased from $277,900 in the last week of May.

The Mortgage Bankers Association Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver’s **SURVEYS** database.

**Tracking Labor Market Stress** from the Federal Reserve Bank of San Francisco is available [here](https://www.frbsf.org/research-and-insights/publications/economic-letter/2025/08/tracking-labor-market-stress/).

- Purchase applications edge higher while loan refinancing declines.
- Effective fixed-interest rate on 30-year loans remains at four-month low.
- Average loan size declines.

U.S. Mortgage Applications Decline Last Week as Interest Rates Steady

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250819G1.jpg

Total housing starts increased 5.2% (12.9% y/y) in July to 1.428 million (SAAR) after rising 5.9% in June to 1.358 million, revised from 1.321 million, and falling 8.3% to 1.282 in May, revised from 1.263 million, according to the U.S. Census Bureau. Total starts in July remained 22.5% below their peak of 1.820 million units reached in April 2022. The Action Economics Forecast Survey expected 1.30 million starts in July.

Single-family starts in July rose 2.8% (7.8% y/y) to 939,000 after falling 3.8% in June to 913,000, revised from 883,000, and edging 0.1% higher in May to 949,000, revised from 926,000. Multi-family starts surged 9.9% (24.1% y/y) in July to 489,000 after strengthening 33.6% in June to 445,000, revised from 438,000, and declining 26.0% to a little-revised 333,000 units in May.

Housing starts in the Midwest surged 33.3% (40.8% y/y) in July to 252,000 after rising 3.3% in June. Adding to this increase, starts in the South rose 19.2% (29.5% y/y) to 833,000 after holding steady in June. Offsetting these gains, starts in the West declined 27.5% (-14.4% y/y) to 232,000 after rising 8.1% in June. Housing starts in the Northeast declined 26.0% (-35.5% y/y) to 111,000 after increasing 44.2% in June.

Building permits declined 2.8% (-5.7% y/y) last month to 1.354 million after easing slightly in June. It was the fourth consecutive monthly decline. Single-family permits rose 0.5% (-7.9% y/y) in July to 870,000 after weakening for four straight months. Multi-family permits fell 8.2% (-1.4% y/y) to 484,000 after rising 6.5% in June. Building permits in the Northeast rose 25.2% (-7.9% y/y), and they edged up 0.5% (12.9% y/y) in the Midwest. In the South, building permits declined 4.6% (-6.1% y/y) while in the West, building permits weakened 10.1% (-15.2% y/y).

The housing starts and building permits figures can be found in Haver’s **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

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- Increase brings starts to five-month high.
- Multi-family starts surge while single-family starts rise moderately.
- Building permits decline is led by multi-family.

U.S. Housing Starts Strengthen Unexpectedly in July

Winnie Tapasanun

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250819B35.jpg

Online retail sales, formally known as retail e-commerce sales, rose a seasonally adjusted 1.4% q/q in Q2'25 to $304.2 billion following a 0.1% downtick in Q1’25 (0.0% initially) and a 1.7% increase in Q4’24 (unrevised), according to the U.S. Census Bureau. The Q2’25 reading was the 14th q/q gain in 15 quarters. The year-on-year rate of increase decelerated to 5.3% in Q2'25, the lowest since Q2'22, from 6.0% Q1’25. The latest y/y number was lower than 7.1% in Q2'24; thus, having remained significantly below a high of 45.3% in Q1'21 and a peak of 53.5% in Q2’20.

The Q2'25 rise in retail e-commerce sales compared to a 0.4% q/q gain (3.9% y/y) to $1,865.4 billion in total retail sales during the same period. This overall measure of retail sales excludes food services and restaurant sales. Retail e-commerce sales accounted for 16.3% of total retail sales in Q2'25 following 16.1% in Q1'25, registering the highest rate since Q2'20; the percentage was 16.1% in 2024, 15.3% in 2023, and 7.1% in 2015.

Details of the retail e-commerce sales data by sector are not seasonally adjusted. Sales of nonstore retailers, which accounted for 58.5% of total e-commerce sales, rose 5.3% (1.8% y/y) in Q2'25, the fourth q/q rise in five quarters, following a 20.7% decrease in Q1'25. Building materials & garden equipment sales recovered 34.7% (9.9% y/y), the largest q/q gain since Q2'20, reversing a 16.2% drop. Health & personal care sales rebounded 12.8% (1.7% y/y), the second q/q increase in three quarters, after having plummeted 40.9%.

Clothing accessory store sales rose 9.2% (-1.3% y/y) in Q2'25 after a 38.3% plunge in Q1'25. General merchandise store sales increased 8.4% (17.2% y/y) following a 20.9% drop. Sales of furniture & home furnishings rose 5.1% (4.4% y/y) after a 15.6% fall. Sporting goods, hobby, musical instrument & book sales grew 4.3% (6.7% y/y) following a 31.3% slump. These series registered the fourth q/q gain in five quarters.

Sales of motor vehicles & parts advanced 8.3% (15.9% y/y) in Q2'25, the largest of six straight q/q increases, on top of a 1.0% rise in Q1'25. Miscellaneous sales including gasoline stations recovered 2.6% (2.3% y/y), up for the second quarter in three, following a 2.3% decline. Food & beverage sales excluding food services rose 0.8% (15.5% y/y), the third q/q rise in four quarters, after a 0.1% easing.

E-commerce sales are goods and services ordered over an internet, mobile device (M-commerce), extranet, Electronic Data Interchange (EDI) network, electronic mail, or other comparable online system. Payment may or may not be made online and sometimes sale & price are negotiated. Total sales estimates are adjusted for seasonal variation, but not for price changes. They are also adjusted for trading-day differences and moving holidays.

Retail e-commerce sales data can be found in Haver's **USECON** database.

- Sales +1.4%, the 14th q/q rise in 15 qtrs.; +5.3% y/y, the lowest since Q2'22.
- Online share of total retail sales up to 16.3%, the highest since Q2'20.
- Nonstore sales rebound, up for the fourth quarter in five.
- Widespread gain in online sales led by bldg. materials & garden equipt. (+34.7% q/q).

U.S. Retail E-Commerce Sales Rise in Q2'25

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250819D20.jpg

Retail gasoline prices for all grades, on average, inched up to $3.25 per gallon (-7.1% y/y) last week after falling to $3.24 one week earlier. Prices remained above their low of $3.13 in the week of December 9. The recent high was $3.79 in the week ending April 22, 2024. Their all-time high of $5.11 occurred in the week ending June 13, 2022. The retail price for on-highway diesel fuel fell to $3.71 per gallon (+0.7% y/y) in the week of August 18 after easing to $3.75 in the prior week. The latest diesel price stood well below a high of $4.63 in the week ending September 18, 2023 and a peak of $5.81 in the week ending June 20, 2022.

The price of West Texas Intermediate crude oil declined to $63.31 per barrel (-19.7% y/y) in the week ended August 15 from $64.71 in the prior week. The drop left prices at the lowest level since the first week of June. Prices remained above a $59.04 low in the second week of May. The cost of crude oil peaked at $120.46 in the week of June 10, 2022. Yesterday, the price was $63.96 per barrel. The price of European Brent crude fell to $67.17 per barrel (-18.6% y/y) in the week of August 15, after falling to $68.17 in the prior week. Prices remained below a recent high of $95.61 in the week of September 29, 2023 and below a peak of $127.40 in June 2022. The price was $68.18 per gallon yesterday.

Natural gas prices slipped to an average $2.94/mmbtu (+38.0% y/y) in the week ended August 15, after falling to an average $2.99/mmbtu in the prior week. Prices remained well above a low of $1.40/mmbtu in the week of March 15, 2024 but below their peak of $9.56 in the week of August 26, 2022. Yesterday, the price was $2.96 per mmbtu.

Gasoline demand declined 1.5% y/y in the four weeks ending August 8, following a 2.2% y/y decline in the prior four weeks. Demand for all petroleum products rose 2.9% y/y in the four weeks ending August 8, after a 1.6% y/y increase in the previous four-week period. Crude oil input to refineries rose 4.2% y/y in the four weeks ending August 8, after a 2.9% y/y gain in the prior four weeks.

Gasoline inventories rose 1.8% y/y in the week ending August 8 after a 0.9% y/y in the prior week. Residual fuel oil inventories fell 25.7% y/y in the week of August 8, after a 25.8% y/y fall in the prior week. Crude oil inventories rose 2.8% y/y in the week of August 8 after a 2.7% y/y rise in the previous week.

Measured in days’ supply, gasoline inventories stood at 25.0 days in the week of August 8, unchnged from the prior week. The recent low was 22.9 days in the week of November 8, 2024. The supply of crude oil held at 25.0 days in the week of August 8, and remained below a high of 31.9 days in the week of March 3, 2023.

These data are reported by the Energy Information Administration of the U.S. Department of Energy. The price and supply/demand data can be found in Haver’s **WEEKLY** & **USENERGY** database.

U.S. Energy Prices Are Mixed in Latest Week

Tian Yong Woon

This week, we examine recent developments in US-China trade and assess the broader implications of US trade actions for the BRIC bloc—Brazil, Russia, India, and China. Last week, the US and China extended their tariff truce by 90 days, a move welcomed by equity markets (chart 1). While this pause eased fears of renewed trade tensions, it remains temporary and fragile, with no durable resolution in sight.

As for China’s economy, July data disappointed: retail sales, industrial production, and fixed-asset investment all missed expectations (chart 2). This may signal that tariffs are beginning to bite, as earlier growth drivers—such as some front-loading of imports and one-off consumption boosts like China’s durable-goods subsidy—are fading (chart 3). Newer measures, including loan-interest subsidies, may provide some interim relief. Meanwhile, the property sector remains under heavy strain, with further price and investment declines evidenced in July (chart 4).

In the broader regional context, US trade measures may inadvertently push trading partners closer together, complicating Washington’s bilateral strategy. The BRIC bloc shows tentative signs of greater alignment, though this has yet to appear in data for trade flows (chart 5). China and India, however, are warming toward one another: Foreign Minister Wang Yi’s visit to India this week—focused on the Himalayan border among other issues—suggests an improving dialogue. Separately, discussions at the national level to restart direct flights between the two countries also signal a thaw. Full economic integration remains distant, but the scale of both economies suggests significant potential if relations continue to improve (chart 6).

**The US-China tariff truce**
Last week, the US and China announced a 90-day extension to their mutual tariff truce. Although largely expected, the move still generated further equity market gains (see chart 1). This contrasts sharply with worst-case scenarios earlier this year, when tensions peaked and Washington imposed sweeping tariffs of 145% on Chinese imports — levels that would have severely disrupted global trade and growth if sustained. Instead, both sides agreed to keep additional tariffs at 10% until November 10, allowing more time to pursue a durable trade deal. Still, this is merely a pause rather than progress. 

250819T1.jpg

**The China docket**
In the meantime, China’s latest monthly data releases were watched closely and offered valid reasons for caution despite earlier signs of resilience. More specifically, retail sales, industrial production, and fixed-asset investment (chart 2) all missed expectations, suggesting US tariff and non-tariff measures are beginning to weigh on growth alongside persistent domestic headwinds. Also, China’s unemployment rate inched higher, while property prices continued to decline. If such weakness persists, calls for additional policy support will grow, even though debt-fuelled measures risk merely trading today’s problems for tomorrow’s.

250819T2.jpg

**China retail sales**
Diving deeper into the individual releases, chart 3 highlights the gradual slowdown in China’s retail sales in recent months, with growth easing to 3.7% y/y in July. By product category, the deceleration reflects weaker automobile sales — amid authorities’ clampdown on carmaker price wars — and softer furniture sales, suggesting a one-off boost from the government’s durable-goods subsidy programme may now be fading. Clearer confirmation could come if sales growth of other subsidized goods, such as home appliances, also begin to weaken. Still, retail spending — and broader consumption activity — may gain fresh support from China’s new loan-interest subsidy programme, which covers both consumer borrowing and eligible service-sector business loans.

250819T3.jpg

**China property prices and investment**
Moving next to China’s beleaguered property market, the sector has shown no meaningful recovery for several years. Prices remain on a downtrend, and repeated investor attempts to call a bottom have proven futile. The latest data offered no relief: property prices continued to decline, while investment in the sector fell 12% y/y year-to-date in July (chart 4). That said, the pace of price declines has slowed sharply compared with last year. Even so, what was once a major engine of China’s growth continues to shrink into a shadow of its former self.

250819T4.jpg

**The BRIC bloc**
While recent trade measures appear favourable for the US, lowering partner tariffs and modestly raising Washington’s own rates, significant risks remain. Such moves could push US trading partners closer together, undermining the administration’s strategy of leveraging bilateral negotiations. One potential area of alignment is the BRIC bloc — Brazil, Russia, India, and China. Although hard data have yet to show major shifts (see chart 5), recent headlines suggest small steps toward deeper cooperation. That said, Russia remains constrained by heavy US sanctions and pressure, as reflected in trade flows with its closest partners.

250819T5.jpg

Digging a little further, China and India have recently begun to ease their decades-long frosty ties, partly in response to this year’s US trade tensions. A key sign of improving relations is China’s Foreign Minister Wang Yi’s high-profile visit to India from Monday to Wednesday this week. The visit focused on, among other topics, the disputed Himalayan border — which, if resolved, would mark a major step in restoring bilateral relations — and trade across the border. Other indicators of a warming relationship include ongoing talks to restart direct flights, suspended during the pandemic. Given the sheer size of their populations and economies, as shown in chart 6, a fully developed China-India economic partnership could unlock immense potential. However, the path to meaningful economic integration remains at an early stage, with numerous hurdles still to navigate.

Economy in Brief: November 2005

Jump to:

Inflation Surges in Indonesia after Government Reduced Fuel Subsidies

Fed Funds Rate Raised to 4.00% and Going Higher?

U.S. Construction Spending Rose Further

ISM Index Firmer Than Expected, Pricing Up

Chain Store Sales Finish October Firm as Gasoline Prices Decline

Fed Funds Rate Raised to 4.00% and Going Higher?