20130807-富国证券-Inflation_Chartbook__August_2013_12页_498kb

Economics Group - Inflation Chartbook: August 2013 Summary

Core Content

This report from the Wells Fargo Economics Group provides an analysis of inflation and economic conditions in the U.S. and globally as of August 2013. It highlights the gradual increase in price pressures, the Fed's stance on inflation, and the outlook for the economy in the coming months.

Main Points

• Inflation Trends: Inflation has shown modest improvement, driven largely by rising energy prices, particularly oil. This has eased concerns about disinflation and deflation but has not yet pushed inflation above the 2% target.
• Fed's Position: The Federal Reserve is expected to begin scaling back quantitative easing (QE) as early as September 2013, due to the improved inflation outlook and stronger economic growth expectations.
• Consumer Inflation: The headline PCE deflator fell to a three-and-a-half-year low in the first half of 2013 but has since begun to firm. Core inflation remains weak, but is expected to rise in the coming year.
• Labor Market: Job growth has been steady, averaging around 200,000 jobs per month, though still below the level needed to fully absorb slack. The unemployment rate has declined slightly but remains elevated. Wage growth has increased, but is still below historical averages.
• Global Outlook: Global growth is expected to be the slowest since 2009, with China's economic slowdown overshadowing more stable conditions in Europe.
• Commodity Prices: Energy prices, especially oil, have driven inflation, while other commodities have remained relatively stable. Food prices have shown some recovery, but livestock prices have increased.
• Import and Export Prices: Import prices have declined due to a stronger U.S. dollar and weaker global demand, while export prices have been affected by softer global conditions.
• Producer Prices: Producer inflation has remained low, but there are signs of stabilization, especially in energy and food prices.
• Inflation Expectations: Household inflation expectations have moderated, but are expected to remain tame. Financial market inflation expectations have increased slightly, reflecting a more positive outlook.

Key Information

Inflation Data Highlights

• Headline PCE Deflator:
  • 0.9% YoY in Q2 2013 (lowest in 3.5 years)
  • Stabilized in mid-Q2 and began to firm
  • Expected to rise to 1.4–2.0% in 2014
• Core PCE Deflator:
  • 1.2% YoY in Q2 2013
  • Expected to increase to 1.5–1.7% in 2014
• Consumer Price Index (CPI):
  • Headline CPI: 1.8% YoY
  • Core CPI: 1.6% YoY
• Producer Price Index (PPI):
  • Headline PPI: 1.1% YoY decline in Q2
  • Core PPI: 1.7% YoY decline in Q2

Economic Indicators

• Real GDP Growth:
  • 1.1% in Q2 2013
  • Expected to rise to 2.2–2.4% in 2014
• Nonfarm Payroll Change:
  • 207.3 in Q2 2013
  • Expected to remain around 200,000 jobs per month
• Unemployment Rate:
  • 7.4% as of July 2013
  • Expected to decline further to 7.0% in 2014
• Capacity Utilization Rate:
  • 79.2% in Q2 2013
  • Expected to rise to 80.2% in 2014

Commodity Price Trends

• Oil Prices:
  • Brent oil prices rose 6% since June
  • WTI prices increased 10% in the past month
• Food Prices:
  • Food prices rose 1.4% YoY
  • Food away from home prices increased 2.2% YoY
• Metals Prices:
  • CRB metals index has declined since February
  • Copper prices fell 11% in Q2
  • Steel prices dropped over 50% from the start of 2013

Import and Export Prices

• Import Prices:
  • Fell 0.9% YoY in Q2
  • Nonfuel imports declined across various categories
• Export Prices:
  • Declined 1.1% YoY
  • Nonagricultural exports were dragged down by lower prices

Employment Costs

• Employment Cost Index (ECI):
  • Rose 0.5% in Q2
  • Total compensation costs increased 1.9% YoY
• Wage and Salary Growth:
  • Private industry wages rose slightly
  • Government workers saw weaker wage growth
• Benefits Growth:
  • Benefits costs increased 2.2% YoY
  • Expected to rise with the implementation of the Affordable Care Act

Inflation Expectations

• Household Inflation Expectations:
  • Moderated to 3.0% in June from 3.2% in March
  • Expected to remain tame
• Financial Market Expectations:
  • Inflation expectations have ticked up
  • Five-year implied inflation rate increased by 19 bps
  • Five-year forward inflation rate rose to 2.53%

Outlook

The report concludes that while inflation remains historically low, the recent uptick in prices, especially in energy, has improved the Fed's position to begin tapering QE. The outlook for growth and inflation is positive, with expectations of moderate increases in the coming months. Excess capacity and labor market slack will continue to limit the pace of inflation, but the overall trend is upward.