China consumer prices rise 2 pct on-year in May vs expectations of a 2.3 pct rise
Price pressures in the world's most populous country eased last month on the back of falling food prices, data on Thursday showed. The government's consumer price index (CPI) rose an annual 2 percent, slower than April's 2.3 percent expansion and missing forecasts for a 2.3 percent increase, Reuters reported.
But the producer price index (PPI) remained stuck in negative territory for the 51st straight month, dipping 2.8 percent on-year, versus April's 3.4 percent fall and Reuters estimates for a 3.3 percent decline.
"The biggest driver behind the lower CPI reading was falling food prices. Pork inflation has peaked and fresh vegetable prices are coming off so looking forward, we expect CPI to hover between 1.5 to 2 percent over the remainder of the year," said Wei Li, China economist at Commonwealth Bank of Australia.
"A 10 percent increase in oil prices would drive up producer goods inflation in China by roughly 6 percentage points so a large portion of the recovery in May's PPI was due to higher oil inflation that month."
Domestic demand, while stabilizing, remains tepid and economists widely agree that more growth supportive policies are highly warranted.
China's overall inflation profile remains soft so more stimulus from the People's Bank of China (PBOC) is likely necessary, said Hao Zhou, senior emerging markets economist for Asia at Commerzbank.
But officials can't rely on monetary tools alone amid the challenge of excess capacity in the industrial sector, he warned.
"If you continue to have low interest rates, nobody will exit the market. There will still be oversupply so prices will remain low...So at the end of the day, the central bank will still have to maintain its easing bias but let structural policies do more work."
The PBOC should announce at least one 25 basis-point interest rate cut this year, according to ING. this year, according to ING.
Bank of Japan official talks tough on further monetary easing
Bank of Japan Deputy Governor Hiroshi Nakaso said Thursday that decisive monetary policy is “absolutely essential” for ending deflation and he won’t sit idly by if more action is necessary, keeping the door open for further easing.
“Overcoming deflation as soon as possible through decisive monetary easing is absolutely essential to returning Japan’s economy to a sustained growth path,” Nakaso said in a speech to corporate executives in the city of Akita in northeastern Japan.
Nakaso also said that while the central bank left its policy unchanged in April to study the effects of negative interest rates, “this does not preclude additional monetary easing if necessary.”
The BOJ’s policy board holds its next policy meeting June 15-16.
ECB's Draghi says euro zone at risk of lasting economic damage
Years of weak growth have eroded euro zone productivity, raising the risk of permanent damage to its economic health, the European Central Bank's president said on Thursday, underscoring his argument that monetary policy alone cannot end the bloc's economic malady.
"There are many understandable political reasons to delay structural reform, but there are few good economic ones. The cost of delay is simply too high," Mario Draghi told the Brussels Economic Forum.
"We do not let inflation undershoot our objective for longer than is avoidable given the nature of the shocks we face," Draghi said. "For others, it means devoting every effort to ensuring that output is returned to potential before subpar growth causes lasting damage."
Dollar at 5-week low boosts commodities; stocks rise
The US dollar fell for a fourth straight session on Wednesday on waning expectations of a near-term Federal Reserve interest rate hike, while an index of world equity markets advanced to a six-week high.
Commodities rallied on the weaker dollar, and crude oil futures hit fresh 2016 highs on persistent worries related to supply outages.
The dollar hit a five-week low against a basket of currencies as traders reduced bets of an imminent US rate increase following a weak jobs report and perceived dovish comments from the Federal Reserve Chair Janet Yellen. The dollar index was last down 0.22 per cent to 93.619.
The MSCI world equity index, which tracks shares in 45 countries, rose for a fifth straight session and was up 0.31 per cent. Shares have rallied on buoyant crude oil prices and an upbeat assessment of the economy by Fed Chair Janet Yellen on Monday.
“A positive move develops its own momentum,” said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland.
“As we saw with the clearly disappointing jobs report, even some bad news is not enough to shake off the positive feeling that has been driving prices higher,” he said.
Oil hits fresh 2016 highs as U.S. crude stocks fall
Oil prices edged up to fresh 2016 highs on Thursday, buoyed by a fall in U.S. crude inventories, a weaker dollar and strong demand, although some analysts warned that the recent rally was starting to look overblown.
International Brent crude oil futures LCOc1 hit a high of $52.86 a barrel, and were up 23 cents at $52.74 a barrel at0700 GMT. U.S. crude CLc1 hit a fresh high of $51.67 and was up 33 cents higher at $51.56 a barrel.
Traders said the rises were largely a result of a drop in U.S. crude inventories.
Data from the U.S. Energy Information Administration (EIA) showed U.S. crude stocks last week fell by 3.23 million barrels to 532.5 million barrels, marking their third consecutive weekly fall.
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