Economy in Brief: 2022

At today's meeting of the Federal Open Market Committee (FOMC), the Fed announced a 75 basis point increase in the target for the Federal funds rate to 3.00% - 3.25%. It was the third consecutive increase of that magnitude and places the rate at the highest level since January 2008. The Fed "... anticipates that ongoing increases in the target range will be appropriate." The move was expected by the Action Economics Forecast Survey.

The statement accompanying today's action read, "Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low."

"Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures."

In addition, the Fed will continue reducing its portfolio of Treasury securities and agency debt and agency mortgage-backed securities.

Today's action was endorsed by all members of the FOMC.

The statement issued following today's meeting can be found here.

Make no mistake about it this is not the Nestea™ plunge - the pause that refreshes. The European Monetary Union (EMU) current account in July dives to a deficit of 19.9 billion euros after rebounding to a small €4.2 billion surplus; an earlier €6.9 billion deficit was logged in May. The balance on the goods account is at an €18.3 billion deficit in July after a €0.3 billion deficit in June. The goods balance has been eroding for quite some time. Changes in the current account balance over three months to six months to 12 months show consistent erosion. The goods balance has deteriorated by €46.6 billion over 12 months, by €28.2 billion over six months and by €18.2 billion EUR over three months. While current account transfers remain deeply negative, the change in transfers has been diminishing from €3.1 billion over 12 months, a wider €3.3 billion deterioration over six months which has shrunk to €1 billion of deterioration over three months.

The three largest EMU economies Germany, France, and Italy show that Germany still has a surplus in July, but France and Italy both post deficits on their current accounts. For France the deficit is €5.3 billion; for Italy it is €3.8 billion. However, when we look at the period-to-period sequential changes, each of these three countries shows deterioration over each of the three horizons; Germany may still have a surplus but it, too, is eroding. If we annualize the changes over the respective periods, the deteriorations are also getting progressively worse - except for Germany.

PPI Inflation in Portugal Portugal's PPI falls by 0.9% in August after rising 0.4% in July and by 2.4% in June. This sequential growth rates for producer prices in Portugal show an annual rate of 22.5% over 12 months that eases slightly to 21.7% over six months, then it falls dramatically to an 8.2% annual rate over three months.

Manufactured goods at the producer level show a decline of 1.4% in August after a 1.4% increase in July and a 3.5% rise in June. Manufacturing prices were at a 23.4% pace over 12 months then accelerate to a 36.3% annual rate over six months then decelerate sharply to 14.8% pace over three months. Clearly the hallmark for inflation here is ‘different strokes for different folks.'

Looking at PPI sectors in Portugal monthly, consumer goods prices rise by 0.7% in August, the same as in July but are down from the 1% gain in June. Broader sequential growth rates show consumer goods inflation up 13.9% over 12 months, rising to a 16.6% pace over six months and easing back to a 10% pace over three months. Intermediate goods prices rise by 0.4% in August, by 0.2% in July, and by 0.6% in June. Its broader sequential growth rates show a 19.8% annual rate gain over 12 months, nearly the same gain at a 20% pace over six months, slowing sharply to a 4.9% annual rate gain over three months. Capital goods show a 0.5% increase in prices in August, after 0.3% drop in July, and a 0.5% drop in June. Capital goods sequential patterns show prices rise by 4.7% over 12 months, the pace picks up very slightly to a 5.2% pace over six months then plunges to decline at a 1.1% annual rate over three months.

Portugal shows very different inflation performance and trends for different sectors for data up to date through August. Intermediate good (followed by consumer goods) have the highest inflation rates among sectors over 12 months and six months; consumer goods lead the way higher over three months. Capital goods inflation is the lowest on all horizons, showing a sharp deceleration over three months and logging a net price decline. Capital goods run a rather moderate increase over 12 months of 4.7%.