Wednesday, May 16, 2007
It is sometimes claimed that a picture says a thousand words. If so, then today's post (delivered late thanks to a Blogger power outage) will be the size of a small novella....
Chart 1: UK wages, deflated by the retail price index. Real wage growth is negative for the first time in a dozen years...will the economy eventually hit a brick wall?
Chart 2: Components of UK inflation. Services inflaton has turned sharply lower, thanks in part to a reduction in utility bills. Yet goods price inflation is not only no longer negative, at 2% it's the highest in nearly a decade. And this is with sterling at close to all time highs! This may suggest the disinflationary "free ride" that global central banks have enjoyed from globalization is indeed coming to an end.
Chart 3: US CPI, with a forward projection. One recent poster noted that the US, and indeed the world, is entering 'base effect Nirvana.' The chart below shows how headline and core CPI will print y/y with steady monthly increases of 0.3 and 0.2, respectively. Note the slight sting in the tail at the end, however; for headline CPI, base effect Nirvana wil morph into Hades come September.
Chart 5: Cross border capital flow from the TIC report. Brad Setser has more time, energy, and inclination to dissect the report fully than Macro Man, so visit his site for a more in depth view. However, the chart below amply demonstrates the degree to which US home bias has eroded in recent years. In the twelve months ending in March, US investors bought a net $270 billion worth of foreign securities. Small wonder, then, that the buck has come under pressure!
Chart 6: The P/L. The bounce in oil has taken the monthly figure back into the black , though Macro Man is still long 500 Dec 07 WTI contracts. He remains 68.50 offer for these, and will be glad to see the back of the energy market for a while.