Global Economic Update
Written and accurate as at: Nov 23, 2016 Current Stats & Facts
Australia
The Reserve Bank of Australia (RBA) kept policy unchanged at its November meeting based on recent economic data. Inflation data for the September quarter was 15% year-onyear, the same as the past three quarters. While core inflation remains below the RBA’s target range of 2-3%, it is in line with 2016 forecasts and is unlikely to generate concern for policy in the near term (see Chart 1). The RBA is likely to retain its easing bias but only act on this if activity materially weakens, particularly in the labour market. The unemployment rate fell to a three year low of 5.6% in September, but full-time employment has also fallen by an average of almost 30,000 in the past three months. Other considerations for the RBA will be the housing market and the renewed strength in the Australian dollar
US
US headline inflation data was stronger than expected in September and the evidence of increasing price pressures has fuelled expectations for a rate rise at the December Federal Open Markets Committee (FOMC) meeting. Headline inflation was 1.5% in September, its highest rate since October 2014 and an increase of 1.1% from August. This was supported by higher energy prices and rents with rents/housing costs increasing 0.4% month-on-month in September. Wage pressures are also building, with average hourly earnings increasing 2.7% year on year in September (see Chart 2). This is its strongest pace since early 2010. Market inflation expectations have also moved back towards the US Federal Reserve’s (Fed) 2% target. Any rate increases are likely to be gradual in light of the challenges facing the US in the coming months, including the US election and a potentially stronger US dollar.
Japan
Inflation remains subdued in Japan, with the core CPI annual rate stuck at -0.5% for the third month. Recent economic data has also been soft. The Bank of Japan (BoJ) kept policy unchanged at its last meeting and downgraded its inflation outlook for the coming year from 1.7% to 1.5%. GDP forecasts remain at 1.3%, and the BoJ now believes its 2% inflation target will not be met until March 2019 – four years later than its original pledge.
Europe
The European Central Bank (ECB) left policy unchanged at its October meeting, but indicated it was open to further stimulus, with some views for extending its current quantitative easing program. Any such announcements are likely to be made in the December meeting. September inflation data rose to 0.4%, compared with 0.2% in August, which largely reflects the past falls in oil prices (see chart 3), although October data is likely to show a rise again. Underlying cost pressures in the region remain subdued and support the case for a continued long period of easy monetary policy.
China
China’s economic growth remained steady at 6.7% in the third quarter, in line with expectations and well within the government’s 6.5-7% growth target for the year. Growth was driven by domestic consumption and the services sectors, while trade and investment were weaker – a trend the authorities have been trying to engineer in recent years so overall growth would be more sustainable. Further supporting that trend, the 10.7% annualised growth in retail sales for September was the fastest pace since December last year. Similarly, industrial production rose just 6.1% in September, down from 6.3% in August. There was only a slight acceleration in fixed asset investment, expanding at 8.2% over January to September, from 8.1% in August.
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