China, India, Europe, UK and even US inflation is accelerating sharply at the moment. Data over the weekend reinforced that the period of ultra-low rates is probably ending and rates might move more sharply than markets expect even with growth not yet assured.
Over the weekend the PBoC increased the reserve requirements for their major banks for the 7th time since Q3 last year taking it to 20.5% after the annual pace of inflation rose more than expected to its highest level since July 2008 at a time when growth remains strong.
However it is not just China who is worried about inflation with the US experiencing an 0.5% increase in consumer prices for the second straight month in March, data released Friday showed. These two increases come on the back of two consecutive increase of 0.4% in December and January. This has seen the annual pace of inflation rise to 2.7% from 1.5% over the past 4 month period and 1.1% in November last year. The really scary stat is this acceleration of inflation in the US. It may seem like voodoo stats but if we annualize the last 4 months we can see that the annual US inflation rate is rate is running at the same pace as that of China. Is it any wonder that a number of Fed members are getting anxious about rising inflation.
But it gets worse with the actual annual pace of US inflation expected to rise considerably over the coming months if the recent trend continues as we see a number of benign (really low or negative) outcomes from the first half of 2010 drop out of the calculation. Over the next three months we have an aggregate of -0.3% in monthly outcomes to drop out of the calculation (April 10: 0.0%, May 10: -0.1, June 10 -0.2) meaning that even if consumer prices were flat over the next three months the annual rate would hit 3% as QE2 comes to an end if it proceeds as planned. If the outcomes are in the vicinity of 0.4% to 0.5%, which we have seen over the past 4 months the annual rate will increase to between 4.2% and 4.5%.
Oh, and for Janet Yellen’s edification following what she had to say last week (which Deus Forex Machina discussed here) look at the relationship between the rate of growth in inflation and the Fed’s balance sheet. Nothing to see is here Janet.