Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070913g.jpg" width="353">
The UK housing market, too, seems to be faltering. The monthly survey of the Royal Institute of Chartered Surveyors, RICS, shows a net decline in house prices in its August reading of -1.8%, the first decline since October 2005. The survey questions asks about developments over the past three months, so this is no quirk. The raw data show a drop from 20% in July to 10% in August in the portion of RICS members reporting higher home prices and an increase from 16% to 19% in the portion reporting lower prices. [Net balance figures are seasonally adjusted by RICS.]
In August, the average number of home sales per surveyor was 23.3 over three months. The average number of homes in their inventory at the end of August was 62.2, making a turnover ratio of 37.6%. While this is almost the same as in August 2006, it is down from a recent high of 46.6% in March.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070913h.jpg" width="353">
Further, buyer enquiries were reduced at a net 37% of firms, a deterioration from July&#39;s 27% and June&#39;s 19%. The raw response data showed a lower volume of enquiries at 61% of firms, the highest figure for August since 2004, which was 62%, the highest August value in the nine-year history of the survey.
A separate report from the UK Government&#39;s Department of Trade and Industry shows that orders for construction have already weakened. They fell 7.5% in July, following on 16.0% in June (seasonally adjusted in 2000 prices). These orders move widely from month to month, and looking at a 2-month % change gives an average of -11.9% in June and July, the weakest period since May/June 2003, -12.2%. Orders for new housing rose in July, by 15.7%, but they had dropped 32.7% in June. The two months had an average decline of 11.8%, the weakest performance since September/October 2001. Nonresidential construction orders, called here &quot;other work&quot;, fell 15.3% in July and 8.4% in June.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070913i.jpg" width="353">
Construction output is measured in the UK in quarterly data, reported for Q2 just a week ago. It looked pretty good. The total, &quot;all work&quot;, rose 0.8% from Q1 and 3.5% from a year ago. This was the strongest outcome since Q2 2004. However, the housing portion has already flattened out. New private housing output was virtually unchanged in Q2 after declining 2.1% in Q1; the year-on-year change showed modest growth of 1.1%. Obviously the customer traffic reported in the RICS survey and the downward path of orders for new housing don&#39;t suggest that an improvement is imminent.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">UK: RICS Survey, SA</th>
<th scope="col">Aug 2007*</th>
<th scope="col">July 2007*</th>
<th scope="col">June 2007*</th>
<th scope="col">Year Ago*</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">House Prices: % Balance</td>
<td>-1.8</td>
<td>+10.8</td>
<td>+10.7</td>
<td>+36.2</td>
<td>+28.3</td>
<td>-25.9</td>
<td>+6.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Sales/Stock Ratio, %</td>
<td>37.5</td>
<td>37.1</td>
<td>39.1</td>
<td>37.7</td>
<td>37.7</td>
<td>29.7</td>
<td>45.3</td>
</tr>
<tr class="odd">
<td class="firstcol">New Buyer Enquiries &nbsp;% Balance</td>
<td>-37</td>
<td>-27</td>
<td>-19</td>
<td>+26</td>
<td>+13</td>
<td>+6</td>
<td>-12</td>
</tr>
<tr>
<td colspan="8">SA*, % Change</td>
</tr>
<tr class="odd">
<td class="firstcol">Construction Orders</td>
<td>--</td>
<td>-7.5</td>
<td>-16.0</td>
<td>-3.7</td>
<td>+6.0</td>
<td>+6.0</td>
<td>+8.3</td>
</tr>
<tr class="odd">
<td class="firstcol">New Housing</td>
<td>--</td>
<td>+15.7</td>
<td>-32.7</td>
<td>-0.3</td>
<td>+1.7</td>
<td>+4.7</td>
<td>+15.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Other Work</td>
<td>--</td>
<td>-15.3</td>
<td>-8.4</td>
<td>-5.2</td>
<td>+8.0</td>
<td>+6.6</td>
<td>+5.4</td>
</tr>
</tbody>
</table>
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The UK housing market, too, seems to be faltering. The monthly survey of the Royal Institute of Chartered Surveyors, RICS, shows a net decline in house prices in its August reading of -1.8%, the first decline since October 2005. The [...]

Survey Shows Net Reduction in House Prices; Construction Orders Already Down

Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070914j.jpg" width="353">
Italy shows Yr/Yr inflation trends that are under the ECB&#146;s ceiling pace, at 1.7% compared to a 2% ceiling. The HICP is contained below 2% for both the 3-month and 6-month periods. But for Italy&#146;s national inflation measure inflation is showing a bit more kick. Its overall inflation rate on its national measure is 1.6% y/y, the same as for its ex-tobacco reading. But over three and six months, inflation is in the 2% to 2.5% range with both measures accelerating to 2.5% over three months.
Even so, Italy&#146;s diffusion measures do not confirm that this is much of an issue. For three months diffusion, which looks at the breadth of these trends, finds inflation to be accelerating in as many categories as it is decelerating with a neutral 50% diffusion reading. Over 6 months, diffusion is higher at 58.3%, but that is still not an enormous reading. Even with that diffusion reading national &#145;headline&#146; inflation for 6 months is at 2% largely because one of the falling categories for inflation, communications, saw prices fall at an outsized 12.7% (annual rate).
While Italy may have some of the same lurking inflation France has reported, the trends do not seem to be as entrenched. In terms of the HICP measure, the one we care for the most, inflation is still in very good shape. In these numbers we are probably seeing some of the impact of Italy&#146;s weak economy. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
 Italy HICP and CPI details
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Mo/Mo %</td>
<td colspan="3">Saar %</td>
<td>Yr/Yr</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td> Aug-07</td>
<td> Jul-07</td>
<td> Jun-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">HICP Total</td>
<td>0.2%</td>
<td>-0.1%</td>
<td>0.3%</td>
<td>1.5%</td>
<td>1.6%</td>
<td>1.7%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Core</td>
<td>#N/A</td>
<td>0.0%</td>
<td>0.1%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>1.6%</td>
</tr>
<tr>
<td colspan="8"> CPI</td>
</tr>
<tr class="odd">
<td class="firstcol">All</td>
<td>0.1%</td>
<td>0.2%</td>
<td>0.3%</td>
<td> 2.5%</td>
<td> 2.0%</td>
<td>1.6%</td>
<td>2.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">CPI ex Tobacco</td>
<td>0.1%</td>
<td>0.3%</td>
<td>0.2%</td>
<td> 2.5%</td>
<td> 2.0%</td>
<td>1.6%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Food</td>
<td>0.4%</td>
<td>0.4%</td>
<td>0.1%</td>
<td> 3.5%</td>
<td> 2.9%</td>
<td> 2.4%</td>
<td>2.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Alcohol</td>
<td>0.6%</td>
<td>-0.7%</td>
<td>0.4%</td>
<td> 1.4%</td>
<td>-0.2%</td>
<td>2.3%</td>
<td>5.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Clothing &amp; Shoes</td>
<td>0.2%</td>
<td>0.2%</td>
<td>0.1%</td>
<td> 1.5%</td>
<td>1.2%</td>
<td> 1.3%</td>
<td>1.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Rent &amp; Utilities</td>
<td>0.2%</td>
<td>0.0%</td>
<td>0.3%</td>
<td> 2.2%</td>
<td>0.7%</td>
<td>1.2%</td>
<td>6.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Housing &amp;Furniture</td>
<td>0.2%</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.5%</td>
<td> 3.5%</td>
<td> 2.7%</td>
<td>1.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Health Care</td>
<td>0.2%</td>
<td>0.1%</td>
<td>-0.2%</td>
<td>0.0%</td>
<td> 0.2%</td>
<td>-0.1%</td>
<td>-0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Transport</td>
<td>-0.7%</td>
<td>0.6%</td>
<td>0.9%</td>
<td>3.0%</td>
<td> 4.7%</td>
<td>1.4%</td>
<td>3.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Communication</td>
<td>0.0%</td>
<td>0.0%</td>
<td>-1.0%</td>
<td> -3.9%</td>
<td>-12.7%</td>
<td>-8.4%</td>
<td>-4.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Recreation &amp;Culture</td>
<td>0.3%</td>
<td>0.1%</td>
<td>0.2%</td>
<td> 2.7%</td>
<td>0.3%</td>
<td> 1.0%</td>
<td>0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Education</td>
<td>0.1%</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.4%</td>
<td> 2.7%</td>
<td>2.1%</td>
<td>3.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Restaurant &amp; Hotel</td>
<td>0.3%</td>
<td>0.3%</td>
<td>0.3%</td>
<td>3.9%</td>
<td> 4.2%</td>
<td> 3.2%</td>
<td>2.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Other</td>
<td>0.3%</td>
<td>0.2%</td>
<td>0.1%</td>
<td>2.3%</td>
<td> 3.2%</td>
<td>2.3%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Diffusion</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>50.0%</td>
<td> 58.3%</td>
<td>41.7%</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Diffusion: Compared to</td>
<td colspan="3">&nbsp;</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Yr-Ago</td>
<td>&nbsp;</td>
</tr>
</tbody>
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Italy shows Yr/Yr inflation trends that are under the ECBs ceiling pace, at 1.7% compared to a 2% ceiling. The HICP is contained below 2% for both the 3-month and 6-month periods. But for Italys national inflation measure inflation [...]

Subdued Inflation in Italy

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070913d.jpg" width="353">
U.S. retail gasoline prices have fallen 47 cents, or 15%, from the recent high of $3.22 in the middle of May. Momentum counts for something, but do the fundamentals behind gasoline prices argue for continued declines? The answer is a clear &quot;no.&quot;<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070913e.jpg" width="353">
First off, there&#39;s that spike in crude oil prices to roughly $80 per barrel. That is up 15% from the very recent low of $70 per barrel in early August.
Higher feedstock prices seem to suggest that retail prices will rise.
Easier demand for gasoline also contributed to the gasoline price drop. That decline could continue given that gasoline prices still are up nearly 20% from yearend &#39;06, but that is the only (somewhat flimsy) reason to expect price declines to continue. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070913f.jpg" width="353">
Other fundamentals suggest higher gasoline prices, and one is the low state of gasoline inventories. Gasoline inventories are down 16% this year and most recently have slipped 7% after a brief rebuilding this past Spring and early Summer.
Lower U.S. production of gasoline and lower imports of petroleum products which usually would lift inventory did not stem the inventory decline.
So it is the combination of higher crude oil prices and lower gasoline inventories that suggest a rise gasoline prices, and possibly soon. The good, but hardly great, news is that the rise will come from a level of gasoline prices relative to all other prices which is down roughly 39% from the high in 1980. 
Energy statistics are available daily in Haver Analytics&#39; DAILY database, weekly in WEEKLY and OILWKLY, monthly/quarterly in USECON and OGJ, and annual in OGJANN. Data from Energy Intelligence are also available in OMI, NGW and WGI.

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U.S. retail gasoline prices have fallen 47 cents, or 15%, from the recent high of $3.22 in the middle of May. Momentum counts for something, but do the fundamentals behind gasoline prices argue for continued declines? The answer is a [...]

Will Gasoline Prices Continue to Fall?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070913c.jpg" width="353">
France&#146;s HICP is below 2% Y/Y at a 1.3% pace. It has since, in shorter periods of six months and three months, shown some upward pressure. The HICP core for August is not yet available, but it too has showed some pressure in recent months. France&#146;s own core CPI is an example as it is up by 0.4% in August. It is up by 1.5% Y/Y. Still, over three and six months, its pace is in the 2.2% to 2.3% range. That is not horrible but it is above the ECB ceiling rate of 2%. 
The red figures in the table below identify categories where inflation has accelerated relative to the previous period. (three months compared to six months; six months compared to year over year etc). They show that over six months inflation has heated up. And even with that, compared to six month ago three-month trends are somewhat mixed but still elevated themselves, on balance. 
Inflation over twelve months is lower than it was over the previous 12 months. The diffusion readings at the table bottom underscore what the headlines for inflation tell us on that score. The diffusion reading scans the 12 main CPI categories for trends; it finds inflation sharply higher over six months compared to 12 months in most CPI categories. It also finds it only slightly more elevated over three months than over six months. Diffusion readings above 50% indicate acceleration; below 50%, deceleration. Diffusion measures the breadth of inflation, not its intensity. 
Prices for alcohol and food are strong as well for restaurants and hotels. The ECB already is wary of food prices. France does seem to be experiencing some really strong pressure in inflation, though nothing terribly virulent.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
France HICP and CPI Details
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Mo/Mo %</td>
<td colspan="3">Saar %</td>
<td>Yr/Yr</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Aug-07</td>
<td>Jul-07</td>
<td>Jun-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr>
<td class="firstcol">HICP Total</td>
<td>0.3%</td>
<td>0.0%</td>
<td>0.2%</td>
<td>2.3%</td>
<td>2.7%</td>
<td>1.3%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">Core</td>
<td>#N/A</td>
<td>0.0%</td>
<td>0.1%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td colspan="8">CPI</td>
</tr>
<tr>
<td class="firstcol">All</td>
<td>0.3%</td>
<td>0.1%</td>
<td>0.2%</td>
<td>2.3%</td>
<td>2.5%</td>
<td>1.2%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">CPI excl Food &amp; Energy</td>
<td>0.4%</td>
<td>0.1%</td>
<td>0.1%</td>
<td>2.3%</td>
<td>2.2%</td>
<td>1.5%</td>
<td>1.4%</td>
</tr>
<tr>
<td class="firstcol">Food</td>
<td>0.7%</td>
<td>-0.2%</td>
<td>0.5%</td>
<td>4.4%</td>
<td>3.2%</td>
<td>1.2%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">Alcohol</td>
<td>2.9%</td>
<td>0.3%</td>
<td>0.4%</td>
<td>15.4%</td>
<td>9.5%</td>
<td>3.3%</td>
<td>0.2%</td>
</tr>
<tr>
<td class="firstcol">Clothing &amp; Shoes</td>
<td>0.3%</td>
<td>-0.7%</td>
<td>0.2%</td>
<td>-1.0%</td>
<td>4.1%</td>
<td>0.7%</td>
<td>-0.1%</td>
</tr>
<tr>
<td class="firstcol">Rent &amp; Utilities</td>
<td>0.1%</td>
<td>0.2%</td>
<td>0.5%</td>
<td>3.0%</td>
<td>2.8%</td>
<td>2.3%</td>
<td>4.7%</td>
</tr>
<tr>
<td class="firstcol">Health Care</td>
<td>0.1%</td>
<td>0.4%</td>
<td>0.0%</td>
<td>1.9%</td>
<td>0.4%</td>
<td>0.2%</td>
<td>0.2%</td>
</tr>
<tr>
<td class="firstcol">Transport</td>
<td>-0.4%</td>
<td>0.2%</td>
<td>0.4%</td>
<td>0.6%</td>
<td>4.3%</td>
<td>1.0%</td>
<td>3.5%</td>
</tr>
<tr>
<td class="firstcol">Communication</td>
<td>0.5%</td>
<td>0.0%</td>
<td>-0.1%</td>
<td>1.6%</td>
<td>-1.5%</td>
<td>0.9%</td>
<td>-7.0%</td>
</tr>
<tr>
<td class="firstcol">Recreation &amp; Culture</td>
<td>-0.1%</td>
<td>-0.2%</td>
<td>0.1%</td>
<td>-1.0%</td>
<td>-0.5%</td>
<td>-1.9%</td>
<td>-0.5%</td>
</tr>
<tr>
<td class="firstcol">Education</td>
<td>0.1%</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.4%</td>
<td>2.5%</td>
<td>2.3%</td>
<td>2.8%</td>
</tr>
<tr>
<td class="firstcol">Restaurant &amp; Hotel</td>
<td>0.8%</td>
<td>0.5%</td>
<td>0.3%</td>
<td>6.8%</td>
<td>4.8%</td>
<td>3.0%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">Other</td>
<td>0.1%</td>
<td>0.0%</td>
<td>0.1%</td>
<td>0.7%</td>
<td>1.8%</td>
<td>2.0%</td>
<td>3.0%</td>
</tr>
<tr>
<td class="firstcol">Diffusion</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>54.5%</td>
<td>81.8%</td>
<td>36.4%</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Type:</td>
<td colspan="3">Diffusion: Compared to</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Yr-Ago</td>
<td>--</td>
</tr>
</tbody>
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Frances HICP is below 2% Y/Y at a 1.3% pace. It has since, in shorter periods of six months and three months, shown some upward pressure. The HICP core for August is not yet available, but it too has showed some pressure in recent [...]

France HICP Slowing but Unruly and over the ECB Ceiling Pace of 2% Over Shorter Horizons

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070913a.jpg" width="353">
Initial claims for unemployment insurance rose a bit last week, but only by 4,000 to 319,000. A much larger increase to 325,000 had been expected by a Consensus of economists that would have reversed roughly half of the prior week&#39;s 22,000 decline. The prior week&#39;s figure was revised down slightly to 315,000.
A claims level below 400,000 typically has been associated with growth in nonfarm payrolls. During the last six years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The four-week moving average of initial claims fell slightly to 324,000 (2.7% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070913b.jpg" width="353">
Continuing claims for unemployment insurance fell by 6,000, reversing one third of the prior week&#39;s large 18,000 increase. That rise was revised lower from a 25,000 gain reported initially. The continuing claims numbers lag the initial claims figures by one week.
Since yearend 2006, continuing claims have risen 173,000 or by 7.2%
Payroll employment has risen 870,000 (0.6%) since yearend.
The insured rate of unemployment was unchanged at 2.0%.
The Rise in U.S. Household Indebtedness: Causes and Consequences from the Federal Reserve Bank can be found <a href="http://www.federalreserve.gov/pubs/feds/2007/200737/200737pap.pdf"> 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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">09/08/07 </th>
<th scope="col">09/01/07 </th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>&nbsp;319</td>
<td>315</td>
<td>2.2%</td>
<td>313</td>
<td>331</td>
<td>343</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,585</td>
<td>4.2%</td>
<td>2,545</td>
<td>3.3%</td>
<td>2,459</td>
</tr>
</tbody>
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Initial claims for unemployment insurance rose a bit last week, but only by 4,000 to 319,000. A much larger increase to 325,000 had been expected by a Consensus of economists that would have reversed roughly half of the prior week's [...]

U.S. Initial Unemployment Insurance Claims Remained Low

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070912e.jpg" width="353">
Industrial production in India has declined for two months now, with the July data out today showing a 3.2% drop from June in figures seasonally adjusted by Haver Analytics. This pulled July&#39;s year-on-year growth to 7.1% (not seasonally adjusted) from 10.4% in Q2 and 12.5% in Q1. The peak individual growth month was November 2006, which was a striking 15.8% above November 2005.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070912f.jpg" width="353">
In the manufacturing sector, which makes up 79% of this index, a variety of industries have participated in this recent slowing. Wood products are perhaps most notable: including furniture and fixtures, this group lurched upward dramatically from December through March and moved irregularly after that, falling nearly 24% in July. The same pattern, though less extreme, is found in machinery production. It fell in the latest month by 9.5%, but, as seen in the second graph, it had expanded greatly in May, by 14.5% in fact, to an elevated level. We plot it here along with total manufacturing and another leading industry, rubber, plastics and petroleum. To see their movements in relation to each other, we can use Haver&#39;s DLXVG3 &quot;scale option&quot; to put all of these series on some convenient index base; here, if we use 2005, we see that overall, the broad manufacturing sector along with the machinery industry and the rubber &amp; plastics products group have grown along very similar trends since 2005. The July decline in machinery only just brought it back in line with the others.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070912g.jpg" width="353">
Not all industries show this exact behavior, up in the previous few months and then down in July. Others seem to be plateauing following an earlier run-up. Examples cut across industry types: basic metals, nonmetallic mineral products and chemicals. Only transportation equipment appears to be in an outright downtrend.
The one sector among Indian industries that is growing persistently is electric utilities. Electrical output was up 7.5% in July from a year ago. As the final graph shows, year-to-year growth rates are highly volatile. So, using DLXVG3&#39;s new nesting capability, we&#39;ve averaged them over 12-month periods to find the trend. The July value of this measure is 7.9% and was 8.0% in June. These two months are the strongest since Q1 of 1996, more than 11 years ago. Overall industrial production grows faster, but notably in recent months, as the broader measure has gyrated, the electricity sector has moved more steadily higher. This means that non-industrial users are finding new ways to utilize electric power, taking up the slack when industry slows.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">INDIA, 1993/94 = 100*</th>
<th scope="col">July 2007</th>
<th scope="col">June 2007</th>
<th scope="col">May 2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Index of Industrial Production</td>
<td>256.2</td>
<td>264.6</td>
<td>268.4</td>
<td>239.6</td>
<td>216.7</td>
<td>200.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Mo/Mo % Change</td>
<td>-3.2</td>
<td>-1.4</td>
<td>2.8</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr % Change</td>
<td>7.1</td>
<td>9.0</td>
<td>10.9</td>
<td>10.5</td>
<td>7.9</td>
<td>8.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Manufacturing Index</td>
<td>273.6</td>
<td>283.8</td>
<td>287.7</td>
<td>255.0</td>
<td>228.7</td>
<td>209.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr % Change</td>
<td>7.2</td>
<td>9.9</td>
<td>11.7</td>
<td>11.5</td>
<td>9.0</td>
<td>8.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Electricity Index</td>
<td>220.1</td>
<td>215.3</td>
<td>217.5</td>
<td>201.5</td>
<td>188.0</td>
<td>180.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Yr/Yr % Change</td>
<td>7.5</td>
<td>6.8</td>
<td>9.4</td>
<td>7.2</td>
<td>4.0</td>
<td>7.2</td>
</tr>
</tbody>
</table>
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Industrial production in India has declined for two months now, with the July data out today showing a 3.2% drop from June in figures seasonally adjusted by Haver Analytics. This pulled July's year-on-year growth to 7.1% (not [...]

India's Industrial Sector Downshifts in July After Spring Acceleration

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070912d.jpg" width="353">
Japan&#39;s current account surplus shrinks in July. 
The terms of trade have turned against Japan over the past year as export prices rose by just 10.2% and import prices rose by 26.3%. Exports and imports have been in a broader slowing but in the recent three months they accelerated from Q1 weakness. Japan&#146;s exports and imports are showing signs of catching on and reaccelerating after this slowdown. Japan&#146;s surplus is reviving, albeit erratically. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Japan Current Account Trends
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Jul-07</td>
<td>Jun-07</td>
<td>May-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>12 mo Prev</td>
</tr>
<tr class="odd">
<td class="firstcol">Current Account in $, Mln</td>
<td>$ 14,446</td>
<td>$ 16,682</td>
<td>$ 18,435</td>
<td>$ 16,521</td>
<td>$ 16,879</td>
<td>$ 15,948</td>
<td>$ 13,919</td>
</tr>
<tr>
<td colspan="8">IN Yen, 100 Mln</td>
</tr>
<tr class="odd">
<td class="firstcol">Overall Balance</td>
<td>17,539</td>
<td>20,467</td>
<td>22,264</td>
<td>20,090</td>
<td>20,269</td>
<td>18,982</td>
<td>16,052</td>
</tr>
<tr class="odd">
<td class="firstcol">Balance on Goods</td>
<td>8,434</td>
<td>8,923</td>
<td>9,634</td>
<td>8,997</td>
<td>9,485</td>
<td>9,266</td>
<td>7,556</td>
</tr>
<tr class="odd">
<td class="firstcol">Export Goods % SAAR</td>
<td>0.1%</td>
<td>1.0%</td>
<td>4.6%</td>
<td>25.1%</td>
<td>4.6%</td>
<td>11.1%</td>
<td>29.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Import Goods %, SAAR</td>
<td>0.9%</td>
<td>2.4%</td>
<td>8.4%</td>
<td>67.7%</td>
<td>17.1%</td>
<td>11.8%</td>
<td>33.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Services Balance</td>
<td>(2,371)</td>
<td>(1,898)</td>
<td>(2,060)</td>
<td>(2,110)</td>
<td>(2,085)</td>
<td>(1,966)</td>
<td>(1,795)</td>
</tr>
<tr>
<td colspan="8">Prices In %, SAAR</td>
</tr>
<tr class="odd">
<td class="firstcol">Export Prices</td>
<td>-1.3%</td>
<td>0.6%</td>
<td>3.1%</td>
<td>15.8%</td>
<td>1.7%</td>
<td>5.2%</td>
<td>10.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Import Prices</td>
<td>-1.0%</td>
<td>1.3%</td>
<td>4.6%</td>
<td>34.1%</td>
<td>5.1%</td>
<td>8.9%</td>
<td>26.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Memo: Yen/$</td>
<td>121.41</td>
<td>122.69</td>
<td>120.77</td>
<td>121.62</td>
<td>120.26</td>
<td>119.03</td>
<td>115.29</td>
</tr>
</tbody>
</table>
</body>
</html>

Japan's current account surplus shrinks in July. The terms of trade have turned against Japan over the past year as export prices rose by just 10.2% and import prices rose by 26.3%. Exports and imports have been in a broader slowing [...]

Japan’s Export and Import Growth Slow Then Rebound and Steady

Sharply rising share of AI-related jobs

Inflationary impact of surge in oil prices larger in Europe than in the US

Futures market thinks the price of oil will recede significantly over the next six months

Recent pickup in US defense orders could help support overall growth ahead

Cost of transporting crude oil has soared to series high

Market-based inflation expectations have not yet reflected recent surge in oil prices

Global equity markets are fearing a major economic disruption from soaring oil prices

Is recent drop in sentiment signaling softer growth ahead?

With the Iran conflict, geopolitical risk has soared to alarming levels

Soaring AI-related investment in US underpinning strong contribution of business spending to overall growth

AI-related outperformance of IP in Advanced Asia ex Japan

Resilient US economy pushing up Blue Chip 2026 outlook

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

Global freight costs are on the rise while supply chain pressures are contained

Accelerating positive economic surprises in the G10 are boosting the global economy

Considerably more monetary ease expected from US and UK as Japan tightens

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

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Andrew Cates

**Front-End Yields Reflect Policy Reassessment**
Against a backdrop of key central bank meetings either having just taken place or imminent, short-dated government bond yields have moved decisively higher across most major economies since the escalation of the Middle East conflict, with the sharpest increase seen in the UK. The rise in 2-year yields reflects a repricing of near-term monetary policy expectations, as markets respond to the inflationary implications of higher energy prices and the growing likelihood that central banks will delay easing cycles. Moves have been most pronounced in economies where inflation is expected to be more persistent—most notably the UK—while increases have been more modest in the US and particularly Japan, where policy normalisation remains gradual. In effect, the front end of the curve is signalling a shift away from the “rate cuts soon” narrative that prevailed earlier in the year toward a more cautious, higher-for-longer policy outlook.

260430Z1.jpg

**US Recession Risks Remain Contained—For Now**
Despite the recent deterioration in the macro backdrop, real-time recession risk indicators for the US remain relatively subdued. This is notable given the combination of softer growth momentum, higher bond yields and heightened geopolitical risk. The nowcast—derived from a blend of high-frequency activity data and financial stress measures—has historically tended to move sharply when conditions turn, rather than drift higher gradually. That asymmetry is important in the current environment. While recession risks are not yet flashing red, past cycles suggest they can reprice abruptly, and arguably at present if energy-driven inflation were to feed much more forcefully into financial conditions or begin to weigh more materially on demand.

260430Z2.jpg

**Consumer Confidence Diverges: Europe and UK Slide, US Stabilises**
Consumer confidence has weakened across the major economies, but the deterioration has been more pronounced in the euro area and the UK than in the US. While sentiment in the US has recently edged up, it remains at relatively subdued levels. By contrast, confidence in Europe and the UK has fallen more sharply, reflecting greater exposure to higher energy costs and a more direct squeeze on real household incomes. This divergence is consistent with broader macro trends, suggesting that demand in Europe may prove more sensitive to the current shock, with weaker sentiment feeding more quickly into consumption.

260430Z3.jpg

**Euro area Credit Conditions Turn More Restrictive**
The latest ECB lending survey points to a clear tightening in credit conditions across the euro area, with banks raising lending standards for both firms and households while loan demand weakens. This combination—more restrictive supply alongside softer demand—is typically associated with a cooling in activity, particularly in interest-sensitive sectors. Recent evidence suggests that higher perceived risks, rising funding costs and geopolitical uncertainty are all weighing on banks’ willingness to lend, while weaker confidence and reduced investment appetite are dampening borrowing needs. The result is a tightening in financial conditions that is likely to amplify the broader slowdown already evident in survey data, reinforcing the more fragile growth dynamics now emerging across the region.

260430Z4.jpg

**An Intensifying AI Boom with Supply-Side Undercurrents**
Against the backdrop of surging AI-related investment, semiconductor prices are not just high—they are rising at an increasingly rapid pace. This chart shows a clear acceleration in both prices and export values, pointing to an intensifying boom in global chip demand. While this is in part a reflection of strong, structural demand, supply-side factors may also be playing a growing role. Although the Middle East is not a direct source of key chip-making minerals, it is central to the energy and petrochemical inputs that underpin semiconductor production. Ongoing geopolitical tensions are therefore likely feeding into higher costs and renewed frictions across supply chains. The combination of accelerating demand and tightening supply conditions suggests that semiconductor inflation could prove more persistent—and more globally consequential—than currently assumed.

260430Z5.jpg

**Labour Markets Reflect the AI Acceleration**
Our final chart this week highlights the extent to which the current AI boom is now feeding through into labour markets. This high-frequency indicator—based on the share of job listings containing AI-related keywords—shows a sharp and sustained increase since the widespread adoption of generative AI tools in late 2022. What began as a more traditional build-out in machine learning roles has evolved into a broader and more intense wave of hiring tied to generative AI capabilities, with demand accelerating markedly across multiple economies. The scale and persistence of this trend point to a structural shift rather than a cyclical upswing, reinforcing the view that AI is becoming an increasingly important driver of investment, productivity expectations and, potentially, broader macroeconomic dynamics.

260430Z6.jpg

Against a backdrop of persistent geopolitical tensions, firmer energy prices and a busy week of central bank meetings—including the Fed, ECB, BoE and BoJ—financial markets have remained notably resilient, even as the macro narrative has softened at the margin. The message from this week’s charts is one of growing tension beneath that surface calm. Front-end bond yields have moved higher, signalling a shift toward a more cautious, “higher-for-longer” policy outlook (chart 1). At the same time, real-time recession indicators for the United States suggest risks remain contained for now (chart 2). Consumer confidence data paint a more uneven picture, with sharper declines in the euro area and UK than in the US, highlighting regional vulnerabilities to the current energy shock (chart 3). The ECB’s latest bank lending survey reinforces this, pointing to tighter credit conditions and weaker demand—factors that are likely to weigh further on European growth (chart 4). By contrast, developments in the semiconductor sector underline a different dynamic: an intensifying global boom, with accelerating price pressures reflecting both strong AI-driven demand and emerging supply-side constraints linked indirectly to energy and logistics disruptions (chart 5). Finally, labour market data confirm that the AI surge is not merely a market narrative but a tangible structural shift, with hiring for AI-related roles accelerating across economies (chart 6). Taken together, these signals point to a more complex macro environment—one in which resilient markets coexist with softening growth, more persistent inflation risks and increasingly delicate policy trade-offs.

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Charts of the Week: Tension Beneath the Surface

Michael J. Moran

260430N.jpg

260430O.jpg

Real GDP grew at an annual rate of 2.0% in the first quarter of 2026, almost identical to the expected advance of 2.1%. The latest change was comfortably within the range of recent observations and close to the economy’s potential rate of growth. The year-over-year change totaled 2.7%, but that shift reflected what might be viewed as a special factor (robust growth in the second and third quarters that offset a trade-tariff-induced drop in 2025-Q1 GDP).

Business fixed investment was the star of the show in the first quarter, registering growth of 10.4%. Outlays for information processing equipment and software were especially strong, while outlays for industrial equipment and Research & Development contributed positively as well. Outlays for structures remained decidedly soft, dropping for the ninth consecutive quarter. Building of data centers have been vigorous, but softness in offices and manufacturing facilities has dwarfed the strength in this new area.

Federal spending surged 9.4% in Q1, but the rise reflected the reopening of most federal agencies after their closure during much of the fourth quarter. Excluding this noise, support from the federal government has been softening. Nondefense outlays peaked in the fourth quarter of 2024, and they were 6.9% shy of that total in the first quarter. Defense spending also peaked in 2024-Q4 and has eased 2.4% since then. Defense spending most likely will grow in coming quarters because of the efforts in the Middle East. Orders for defense goods have already started to rise.

Consumer spending rose 1.5% in the first quarter, a bit shy of the 2.1% pace over the four quarters of last year and less than half the rates in 2023 and 2024. Consumer spending showed signs of softening in late 2025 and January of this year, but activity picked up in February and March. Firm tax refunds might have provided a boost to household spending in the latest months. Some of the tax cuts from the One Big Beautiful Bill were applied retroactively to 2025, but withholding schedules were not adjusted last year. Thus, many households are receiving larger-than-normal tax refunds.

International trade acted as a drag on economic growth in Q1, with net exports subtracting 1.3 percentage points from the GDP increase. Exports did well in the first quarter with growth of 12.9%, but imports were even stronger with a jump of 21.4%. The real trade deficit of $1.1 trillion was noticeably smaller than the shortfall of $1.4 trillion in 2025-Q1 when importers were rushing to get goods into the US before the imposition of tariffs. Still, the trade shortfall was sizeable and its effect on growth noticeable.

The GDP data can be found in Haver’s **USECON** and **USNA** databases. **USNA** contains virtually all of the Bureau of Economic Analysis detail in the national accounts. The Action Economics consensus estimates can be found in **AS1REPNA**.

260430P.jpg

260430Q.jpg

- Robust business investment led the advance; moderate support from consumers.
- Government spending jumped with the reopening of most federal agencies.
- The trade sector remained volatile, making a sizeable negative contribution in Q1.

Q1 GDP: Weathering the Challenges; Trend-Like Growth

Sandy Batten

260430A.jpg

260430B.jpg

This monthly report contains a wealth of information concerning the state of the consumer. The anticipation ahead of today’s report centered on how much the surge in energy prices since the escalation of the US-Iran conflict in early March would push up overall PCE inflation. Prices of energy goods and services jumped 11.6% m/m not annualized in March. This was the largest monthly increase since September 2005. As a result, the headline PCE price index increased 0.7% m/m (3.5% y/y versus 2.8% y/y in February), the largest monthly gain since July 2022 but in line with expectations of the Action Economics Forecast Survey.

The core index (that is, excluding food and energy prices) rose by a more modest 0.3% m/m in March, down from a 0.4% monthly increase in February and in line with expectations. However, the yearly rate rose further to 3.2% y/y in March from 3.0% in February, well above and moving away from the Fed’s 2% target. The FOMC left its fed funds rate target unchanged at yesterday’s meeting, but some committee members dissented, opposing the implied easing bias contained in the statement. Chair Powell, in his press conference, noted that a number of members have become more concerned over the inflation outlook and the possible need for a Fed response.

Nominal personal income posted a solid 0.6% m/m (3.7% y/y) increase in March following an upwardly revised unchanged reading in February (previously -0.1% m/m). The March increase was twice the 0.3% monthly gain expected by the Action Economics Forecast Survey. However, after adjusting for inflation, real personal income slipped 0.1% m/m in March on top of a 0.4% m/m decline in February.

Employee compensation continued to be a major driver of personal income in March. It rose 0.4% m/m (4.1% y/y) in March after a 0.2% monthly increase in February. In March, proprietors’ income jumped 2.8%. This outsized increase reflected payments to farmers from the federal government’s Farmer Bridge Assistance Program. Rental income rose a solid 0.7% m/m, the same gain as in February. Income from financial assets increased 0.4% m/m following a 0.9% m/m decline in February. Personal current transfer payments edged up 0.1% m/m versus a 0.3% m/m decline in February.

Nominal consumption expenditures jumped 0.9% m/m (5.7% y/y) in March following an upwardly revised 0.6% monthly gain in February (previously +0.5% m/m). Spending on goods rose 2.0% m/m (4.5% y/y) while spending on services increased 0.4% m/m (6.3% y/y). As for overall inflation, the surge in energy prices also accounted for a large portion of the March gain in nominal spending. After adjusting for overall inflation, real PCE rose a more modest 0.2% m/m following an upwardly revised 0.3% m/m increase in February (previously +0.1% m/m). Still, the solid gains in February and March provide a strong starting point for Q2. The March level is 1.5% at an annual rate above the Q1 average. For all of Q1, real PCE rose 1.6% q/q saar.

The personal income and consumption figures are available in Haver’s **USECON** database with detail in the **USNA** database. The Action Economics forecasts are in **AS1REPNA**.

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- The PCE price index jumped 0.7%, reflecting an 11.6% m/m surge in energy prices.
- The core index was up 0.3%, in line with expectations but still well above the Fed’s target.
- Personal income increased 0.6% m/m, led by a 0.4% m/m rise in compensation.
- Personal consumption jumped 0.9% m/m with a slight upward revision to February.
- However, much of the March gain in nominal consumption also reflected the jump in energy prices.
- Real consumption rose by a more modest 0.2% m/m.

Surging Energy Prices Push Up PCE Prices and Consumption in March

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance dropped by 26,000 to 189,000 in the week ending April 25, from 215,000 in the week ending April 18, revised from 214,000. The four-week average declined by 3,500 to 207,500 in the week ending April 25, from 211,000 the April 18 week, revised from 210,750. The Action Economics/Haver Analytics Survey looked for 214,000 claims to have been filed.

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—dropped by 23,000 to 1.785 million in the week ending April 18, from 1.808 million in the week ending April 11, revised from 1.821 million. The four-week moving average declined to 1.797 million in the latest week from 1.809 million in the April 11 week. The insured unemployment rate remained at 1.2% in the week of April 11. It has remained at that level since the week of November 29, 2025.

The insured unemployment rate varied greatly across individual states and territories. In the week ending April 11, the highest unemployment rates were in New Jersey (2.51%), Washington (2.25%), Massachusetts (2.21%), Rhode Island (2.10%), and California (2.06%). The lowest rates were in Florida (0.31%), Louisiana (0.32%), Arkansas, North Carolina and Mississippi (all 0.35%), Alabama (0.36%), South Dakota (0.41%) and Tennessee (0.43%). Rates in other notable states include New York (1.96%), Illinois (1.77%), Pennsylvania (1.40%), and Texas (1.04%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986.

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- New claims dropped by 26,000 to 189,000.
- Continuing claims declined by 23,000 to 1.785 million.
- The insured unemployment rate remained at 1.2%.

U.S. Initial Unemployment Claims dropped in the Week of April 25

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**Unemployment rates are stable near all-time lows for EMU**
Unemployment rates in the European Monetary Union (EMU) continued to hover at the lowest level. The EMU all-time low unemployment rate is 6.2%, and that’s the number reported for March. There have been five of these 6.2% unemployment rates monthly in the history of the monetary union.

Unemployment rates in March saw declines in five of the 12 early reporting countries: the Netherlands, Italy, Finland, Belgium, and Austria. Over the last three months, there were net declines in the unemployment rates in four countries, while year-over-year once again four countries—though a different four—showed declines in the unemployment rate.

Unemployment rates, evaluated relative to their historic standings, have a median rank standing in their 33.6 percentile. That is the median unemployment rank among these 12 countries; it shows that the unemployment rate is in the lower one-third of its historic rank. Among the 12 early reporting countries, only three failed to have unemployment rate rankings below their 30th percentile; those three are Austria with a 71.3 percentile ranking, Finland with an 80th percentile ranking, and Luxembourg with a 98.8 percentile ranking. So, there are three countries among these 12 that have relatively high unemployment rates compared to their histories, whereas the rest of the reporters have unemployment rates below their respective 30th percentiles.

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**Good, but not great, labor markets**
Clearly, the labor situation is in good hands; however, at the same time, inflation runs over the top of the ECB target, and with war in the Middle East and flurrying oil prices, inflation is going to climb higher. The ECB, like the Federal Reserve, finds itself in the awkward position of not wanting to raise rates because the economy is generating growth; on the other hand, growth seems somewhat fragile. The unemployment rate is low, and inflation has been overshooting, so the central bank is in a difficult position.

**Are central banks awakening from their slumber?**
Despite the good news on the unemployment front, central banks have been wary not to raise interest rates to fend off inflation. Inflation can really be described as having been moved around by financial crises and shocks going back to the great financial crisis. That shock, coupled with the losses that it created, left a legacy of inflation discipline for a very long run, basically, right into the COVID-created recession. COVID weakened economies globally as they were shut down by government policies and then inflation spurted as result of stimulative monetary action and fiscal excess. After that experience, central banks kept stimulative policies on the books and tried to coax growth out of a wounded economy and maintain low unemployment rates, while tolerating inflation that was excessive relative to their targets, but that did not accelerate and did decline slowly—at least for a while. As a result, there's now a legacy of overshooting inflation and more question marks about central banks and their backbone than central bankers want to admit as inflation rises, and as they continue to watch and postpone acting.

**ECB met and declared watchful waiting—not policy action**
At the recent meeting, the ECB policy statement admitted that “Longer-term inflation expectations remain well anchored, although inflation expectations over shorter horizons have moved up significantly.” They are following the model used in the U.S. to contend that long-term inflation expectations are still firmly anchored while they are only slipping away for the short term—a year ahead or so. However, to its credit, the ECB does refer to expectations having moved up significantly in the near term. This is something policy must be wary of, and it also must be wary that long-term expectations may have been damaged as well.

In her press conference, Christine Lagarde noted that the forward guidance from the ECB has several different elements: “There are sort of three anchors of what our reaction function is. So first of all, to remind you: target is 2% medium term, number one. Number two: symmetry. We discussed that today and we reaffirmed it. Number three: our reaction will depend on the type of deviation from target that we observe. Is it large and sustainable?”

"The increase in energy prices will keep inflation well above 2% in the near term. ⁠As the period of high energy prices extends, the likely impact on broader inflation through indirect and second-round effects intensifies. We will therefore closely monitor the size and persistence of the energy price surge, and how it feeds through to price and wage setting, inflation expectations and overall economic dynamics." (Source [here](https://www.reuters.com/business/finance/lagarde-comments-ecb-press-conference-2026-04-30/)).

**The road they kick the can down is getting narrower**
So, we are in store for more watchful waiting. Central bankers can feel that the flexibility is closing in on them. There's been a long period in which post financial crisis and post-COVID events helped to keep inflation under control, but now we're getting into a situation where it may be harder to keep control of inflation, especially since central bank credibility has been eroded by a long period of target misses. Two wars are in progress, and fiscal excess is the order of the day. So why not wait longer?

**No eager-beaver rate hikers**
No central bank seems eager to undertake this new challenge; however, they seem to be circling around the policy change and preparing to do something they haven't done in a long time, which would be to raise interest rates. Last time, in the wake of COVID, the central banks raised interest rates they waited too long to hike them, calling the situation of inflation temporary or transitory. Once again, the central banks see the oil price shock as something that is temporary; however, it's also severe, and while it's temporary, it could turn out to be ‘temporary’ but fairly long-lasting, making it harder to ignore or for a central bank that plans to ‘look through.’

**Some act, some talk, some just look...**
As I noted in the [report on money supplies](https://www.haver.com/articles/globally-money-supplies-accelerate-no-problemo) yesterday, the current practice of trying to look through this supply shock is creating an overshoot of money supply as we have money supply accelerations brewing in the U.S., the U.K., and the European Monetary Union. However, one of the rules from the 1970s was to not accommodate an oil price shock. Unfortunately, the practice of ‘looking through’ a supply shock—which means holding interest rates steady—is at the same time encouraging acceleration in the money supply, which looks accommodative to me. I don't see any evidence that central bankers have recognized the contradiction implied by these policies; it's something we should keep an eye on.

Economy in Brief

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U.S. Initial Unemployment Insurance Claims Remained Low

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