Archive for April 16th, 2011

China to change its GDP data release

April 16, 2011

This is am amazing post from China realtime Blog. China has changed the way it releases its GDP data and growth rates. Earlier it was year on year growth (Q1- 2011 over Q1-2010). Now it would be quarter on quarter growth (Q2 2011 over Q1 2011) and sesonally adjusted growth rates to account for changes in the twop quarters. This is how US presents its data and is an international standard.

(more…)

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US and Europe have identical inflation but opposite policies

April 16, 2011

From WSJ BLog:

U.S. and euro zone inflation were at identical 2.7% annual rates in March, according to their respective statistics agencies in separate reports Friday. Core inflation is more or less the same (1.2% in the U.S., 1.3% in the euro bloc). Until last month, inflation had been running slightly faster in the euro zone.

Yet given the same set of inflation dynamics, the European Central Bank has already raised interest rates once and, based on Friday’s report, is likely to do so again as early as June. TheFederal Reserve, in contrast, continues to pump money into the economy via QE2, and isn’t expected to lift interest rates from near zero for many months.

In large part, it’s a difference of emphasis. Fed officials think higher commodity prices are temporary, and that core inflation is a better gauge of underlying price trends. ECB officials target headline inflation, and worry that higher energy and food prices will filter through the economy via “second round” effects, namely higher wages and retail prices.

I really did not note inflation numbers are so simialr in both the areas. What is even more amazing is that most experts talk about US econo y growing faster and Europe still struggling. Hence future is more promising for US (and still Fed prefers to pasue) where as bleak for Europe (and still ECB hikes).

There are other forces at work, too. The U.S. has a higher growth potential, meaning the recession created a larger output gap there than it did in Europe. That presumably gives the Fed more time to see how long higher commodity prices stick.

The Fed also has a dual inflation-employment mandate (the ECB is only responsible for keeping inflation just below 2%). Though unemployment in the euro zone is higher than it is in the U.S., ECB officials think that is more a structural issue for governments than it is a monetary-policy problem.

It will be nice to see whether ECB again hikes rates when things are not as rosy as it did in 2008. It hiked rates just ahead of LEhman crisis leading to criticisms…

Whatever the reasons, the two biggest central banks in the world can’t have such divergent views without consequences down the road.

If the ECB is right and higher commodity-driven inflation must be addressed quickly, then it may be able to keep inflation expectations under control without large-scale rate increases. If the Fed errs in waiting too long, it could be forced to play catch-up with more aggressive, and damaging, rate increases down the road.

If, however, the ECB is being unnecessarily spooked by commodity prices that are largely outside its control, it may unnecessarily damage the economy, especially in the already fragile periphery.

 


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