Risks of Unwinding Monetary Policy, United States Industrial Production, United States International Trade, World Economic Slowdown and Global Recession Risk
Carlos M. Pelaez
© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013
Executive Summary
I United States Industrial Production
II United States International Trade
III World Financial Turbulence
IIIA Financial Risks
IIIE Appendix Euro Zone Survival Risk
IIIF Appendix on Sovereign Bond Valuation
IV Global Inflation
V World Economic Slowdown
VA United States
VB Japan
VC China
VD Euro Area
VE Germany
VF France
VG Italy
VH United Kingdom
VI Valuation of Risk Financial Assets
VII Economic Indicators
VIII Interest Rates
IX Conclusion
References
Appendixes
Appendix I The Great Inflation
IIIB Appendix on Safe Haven Currencies
IIIC Appendix on Fiscal Compact
IIID Appendix on European Central Bank Large Scale Lender of Last Resort
IIIG Appendix on Deficit Financing of Growth and the Debt Crisis
IIIGA Monetary Policy with Deficit Financing of Economic Growth
IIIGB Adjustment during the Debt Crisis of the 1980s
IV Global Inflation. There is inflation everywhere in the world economy, with slow growth and persistently high unemployment in advanced economies. Table IV-1, updated with every blog comment, provides the latest annual data for GDP, consumer price index (CPI) inflation, producer price index (PPI) inflation and unemployment (UNE) for the advanced economies, China and the highly indebted European countries with sovereign risk issues. The table now includes the Netherlands and Finland that with Germany make up the set of northern countries in the euro zone that hold key votes in the enhancement of the mechanism for solution of sovereign risk issues (Peter Spiegel and Quentin Peel, “Europe: Northern Exposures,” Financial Times, Mar 9, 2011 http://www.ft.com/intl/cms/s/0/55eaf350-4a8b-11e0-82ab-00144feab49a.html#axzz1gAlaswcW). Newly available data on inflation is considered below in this section. Data in Table IV-1 for the euro zone and its members are updated from information provided by Eurostat but individual country information is provided in this section as soon as available, following Table IV-1. Data for other countries in Table IV-1 are also updated with reports from their statistical agencies. Economic data for major regions and countries is considered in Section V World Economic Slowdown following with individual country and regional data tables.
Table IV-1, GDP Growth, Inflation and Unemployment in Selected Countries, Percentage Annual Rates
| GDP | CPI | PPI | UNE | |
| US | 1.6 | 1.2 | 0.3 | 7.3 |
| Japan | 2.7 | 1.1 | 2.3 | 3.9 |
| China | 7.8 | 3.2 | -1.5 | |
| UK | 1.5 | 2.2* CPIH 2.0 | 0.8 output | 7.6 |
| Euro Zone | -0.4 | 0.7 | -0.9 | 12.2 |
| Germany | 0.6 | 1.2 | -0.4 | 5.2 |
| France | 0.2 | 0.7 | -0.4 | 11.1 |
| Nether-lands | -0.8 | 1.3 | -2.7 | 7.0 |
| Finland | -0.2 | 1.7 | 0.3 | 8.1 |
| Belgium | 0.4 | 0.7 | -0.9 | 8.9 |
| Portugal | -1.0 | 0.0 | -1.5 | 16.3 |
| Ireland | NA | -0.1 | 2.1 | 13.6 |
| Italy | -1.9 | 0.8 | -2.2 | 12.5 |
| Greece | NA | -1.9 | -1.4 | NA |
| Spain | -1.2 | 0.0 | 0.1 | 26.6 |
Notes: GDP: rate of growth of GDP; CPI: change in consumer price inflation; PPI: producer price inflation; UNE: rate of unemployment; all rates relative to year earlier
*Office for National Statistics http://www.ons.gov.uk/ons/rel/cpi/consumer-price-indices/october-2013/index.html **Core
PPI http://www.ons.gov.uk/ons/rel/ppi2/producer-price-index/october-2013/index.html
Source: EUROSTAT http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/; country statistical sources http://www.census.gov/aboutus/stat_int.html
Table IV-1 shows the simultaneous occurrence of low growth, inflation and unemployment in advanced economies. The US grew at 1.6 percent in IIIQ2013 relative to IIIQ2012 (http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html, Table 8 in http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_adv.pdf and earlier http://cmpassocregulationblog.blogspot.com/2013/09/mediocre-and-decelerating-united-states.html). Japan’s GDP grew 0.5 percent in IIIQ2013 relative to IIQ2013 and 2.7 percent relative to a year earlier. Japan’s grew at the seasonally adjusted annual rate (SAAR) of 1.9 percent in IIIQQ2013 (Section VB and earlier http://cmpassocregulationblog.blogspot.com/2013/09/recovery-without-hiring-ten-million.html). The UK grew at 0.8 percent in IIIQ2013 relative to IIQ2013 and GDP increased 1.5 percent in IIIQ2013 relative to IIIQ2012 (http://cmpassocregulationblog.blogspot.com/2013/10/twenty-eight-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2013/09/mediocre-and-decelerating-united-states.html). The Euro Zone grew at 0.1 percent in IIIQ2013 and minus 0.4 percent in IIIQ2013 relative to IIIQ2012 (Section VD and earlier http://cmpassocregulationblog.blogspot.com/2013/10/imf-view-collapse-of-united-states.html ). These are stagnating or “growth recession” rates, which are positive or about nil growth rates with some contractions that are insufficient to recover employment. The rates of unemployment are quite high: 7.3 percent in the US but 17.7 percent for unemployment/underemployment or job stress of 28.9 million (http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html and earlier http://cmpassocregulationblog.blogspot.com/2013/10/twenty-eight-million-unemployed-or.html), 3.9 percent for Japan (http://cmpassocregulationblog.blogspot.com/2013/10/collapse-of-united-states-dynamism-of.html and earlier http://cmpassocregulationblog.blogspot.com/2013/09/twenty-eight-million-unemployed-or.html), 7.6 percent for the UK with high rates of unemployment for young people (Section VH and earlier http://cmpassocregulationblog.blogspot.com/2013/10/world-inflation-waves-regional-economic.html). Twelve-month rates of inflation have been quite high, even when some are moderating at the margin: 1.2 percent in the US, 1.1 percent for Japan, 3.2 percent for China, 0.7 percent for the Euro Zone and 2.2 percent for the UK. Stagflation is still an unknown event but the risk is sufficiently high to be worthy of consideration (see http://cmpassocregulationblog.blogspot.com/2011/06/risk-aversion-and-stagflation.html). The analysis of stagflation also permits the identification of important policy issues in solving vulnerabilities that have high impact on global financial risks. Six key interrelated vulnerabilities in the world economy have been causing global financial turbulence. (1) Sovereign risk issues in Europe resulting from countries in need of fiscal consolidation and enhancement of their sovereign risk ratings (see Section III and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html). (2) The tradeoff of growth and inflation in China now with change in growth strategy to domestic consumption instead of investment and political developments in a decennial transition. (3) Slow growth by repression of savings with de facto interest rate controls (http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html and earlier http://cmpassocregulationblog.blogspot.com/2013/09/mediocre-and-decelerating-united-states.html), weak hiring with the loss of 10 million full-time jobs (http://cmpassocregulationblog.blogspot.com/2013/10/twenty-eight-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2013/09/recovery-without-hiring-ten-million.html) and continuing job stress of 24 to 30 million people in the US and stagnant wages in a fractured job market (http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html and earlier http://cmpassocregulationblog.blogspot.com/2013/10/twenty-eight-million-unemployed-or.html). (4) The timing, dose, impact and instruments of normalizing monetary and fiscal policies (see http://cmpassocregulationblog.blogspot.com/2013/09/duration-dumping-and-peaking-valuations.html http://cmpassocregulationblog.blogspot.com/2013/02/united-states-unsustainable-fiscal.html http://cmpassocregulationblog.blogspot.com/2012/11/united-states-unsustainable-fiscal.html http://cmpassocregulationblog.blogspot.com/2012/08/expanding-bank-cash-and-deposits-with.html http://cmpassocregulationblog.blogspot.com/2012/02/thirty-one-million-unemployed-or.html http://cmpassocregulationblog.blogspot.com/2011/08/united-states-gdp-growth-standstill.html http://cmpassocregulationblog.blogspot.com/2011/03/is-there-second-act-of-us-great.html http://cmpassocregulationblog.blogspot.com/2011/03/global-financial-risks-and-fed.html http://cmpassocregulationblog.blogspot.com/2011/02/policy-inflation-growth-unemployment.html) in advanced and emerging economies. (5) The Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011 had repercussions throughout the world economy. Japan has share of about 9 percent in world output, role as entry point for business in Asia, key supplier of advanced components and other inputs as well as major role in finance and multiple economic activities (http://professional.wsj.com/article/SB10001424052748704461304576216950927404360.html?mod=WSJ_business_AsiaNewsBucket&mg=reno-wsj); and (6) geopolitical events in the Middle East.
In the effort to increase transparency, the Federal Open Market Committee (FOMC) provides both economic projections of its participants and views on future paths of the policy rate that in the US is the federal funds rate or interest on interbank lending of reserves deposited at Federal Reserve Banks. These policies and views are discussed initially followed with appropriate analysis.
Charles Evans, President of the Federal Reserve Bank of Chicago, proposed an “economic state-contingent policy” or “7/3” approach (Evans 2012 Aug 27):
“I think the best way to provide forward guidance is by tying our policy actions to explicit measures of economic performance. There are many ways of doing this, including setting a target for the level of nominal GDP. But recognizing the difficult nature of that policy approach, I have a more modest proposal: I think the Fed should make it clear that the federal funds rate will not be increased until the unemployment rate falls below 7 percent. Knowing that rates would stay low until significant progress is made in reducing unemployment would reassure markets and the public that the Fed would not prematurely reduce its accommodation.
Based on the work I have seen, I do not expect that such policy would lead to a major problem with inflation. But I recognize that there is a chance that the models and other analysis supporting this approach could be wrong. Accordingly, I believe that the commitment to low rates should be dropped if the outlook for inflation over the medium term rises above 3 percent.
The economic conditionality in this 7/3 threshold policy would clarify our forward policy intentions greatly and provide a more meaningful guide on how long the federal funds rate will remain low. In addition, I would indicate that clear and steady progress toward stronger growth is essential.”
Evans (2012Nov27) modified the “7/3” approach to a “6.5/2.5” approach:
“I have reassessed my previous 7/3 proposal. I now think a threshold of 6-1/2 percent for the unemployment rate and an inflation safeguard of 2-1/2 percent, measured in terms of the outlook for total PCE (Personal Consumption Expenditures Price Index) inflation over the next two to three years, would be appropriate.”
The Federal Open Market Committee (FOMC) decided at its meeting on Dec 12, 2012 to implement the “6.5/2.5” approach (http://www.federalreserve.gov/newsevents/press/monetary/20121212a.htm):
“To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.”
Another rising risk is division within the Federal Open Market Committee (FOMC) on risks and benefits of current policies as expressed in the minutes of the meeting held on Jan 29-30, 2013 (http://www.federalreserve.gov/monetarypolicy/files/fomcminutes20130130.pdf 13):
“However, many participants also expressed some concerns about potential costs and risks arising from further asset purchases. Several participants discussed the possible complications that additional purchases could cause for the eventual withdrawal of policy accommodation, a few mentioned the prospect of inflationary risks, and some noted that further asset purchases could foster market behavior that could undermine financial stability. Several participants noted that a very large portfolio of long-duration assets would, under certain circumstances, expose the Federal Reserve to significant capital losses when these holdings were unwound, but others pointed to offsetting factors and one noted that losses would not impede the effective operation of monetary policy.”
Jon Hilsenrath, writing on “Fed maps exit from stimulus,” on May 11, 2013, published in the Wall Street Journal (http://online.wsj.com/article/SB10001424127887324744104578475273101471896.html?mod=WSJ_hp_LEFTWhatsNewsCollection), analyzes the development of strategy for unwinding quantitative easing and how it can create uncertainty in financial markets. Jon Hilsenrath and Victoria McGrane, writing on “Fed slip over how long to keep cash spigot open,” published on Feb 20, 2013 in the Wall street Journal (http://professional.wsj.com/article/SB10001424127887323511804578298121033876536.html), analyze the minutes of the Fed, comments by members of the FOMC and data showing increase in holdings of riskier debt by investors, record issuance of junk bonds, mortgage securities and corporate loans. Jon Hilsenrath, writing on “Jobs upturn isn’t enough to satisfy Fed,” on Mar 8, 2013, published in the Wall Street Journal (http://professional.wsj.com/article/SB10001424127887324582804578348293647760204.html), finds that much stronger labor market conditions are required for the Fed to end quantitative easing. Unconventional monetary policy with zero interest rates and quantitative easing is quite difficult to unwind because of the adverse effects of raising interest rates on valuations of risk financial assets and home prices, including the very own valuation of the securities held outright in the Fed balance sheet. Gradual unwinding of 1 percent fed funds rates from Jun 2003 to Jun 2004 by seventeen consecutive increases of 25 percentage points from Jun 2004 to Jun 2006 to reach 5.25 percent caused default of subprime mortgages and adjustable-rate mortgages linked to the overnight fed funds rate. The zero interest rate has penalized liquidity and increased risks by inducing carry trades from zero interest rates to speculative positions in risk financial assets. There is no exit from zero interest rates without provoking another financial crash.
Unconventional monetary policy will remain in perpetuity, or QE→∞, changing to a “growth mandate.” There are two reasons explaining unconventional monetary policy of QE→∞: insufficiency of job creation to reduce unemployment/underemployment at current rates of job creation; and growth of GDP at around 1.8 percent, which is well below 3.0 percent estimated by Lucas (2011May) from 1870 to 2010. Unconventional monetary policy interprets the dual mandate of low inflation and maximum employment as mainly a “growth mandate” of forcing economic growth in the US at a rate that generates full employment. A hurdle to this “growth mandate” is that US economic growth has been at only 2.3 percent on average in the cyclical expansion in the 17 quarters from IIIQ2009 to IIIQ2013. Boskin (2010Sep) measures that the US economy grew at 6.2 percent in the first four quarters and 4.5 percent in the first 12 quarters after the trough in the second quarter of 1975; and at 7.7 percent in the first four quarters and 5.8 percent in the first 12 quarters after the trough in the first quarter of 1983 (Professor Michael J. Boskin, Summer of Discontent, Wall Street Journal, Sep 2, 2010 http://professional.wsj.com/article/SB10001424052748703882304575465462926649950.html). There are new calculations using the revision of US GDP and personal income data since 1929 by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_adv.pdf
http://bea.gov/newsreleases/national/gdp/2013/pdf/gdp2q13_adv.pdf http://bea.gov/newsreleases/national/pi/2013/pdf/pi0613.pdf) and the first estimate of GDP for IIIQ2013 (http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_adv.pdf). The average of 7.7 percent in the first four quarters of major cyclical expansions is in contrast with the rate of growth in the first four quarters of the expansion from IIIQ2009 to IIQ2010 of only 2.7 percent obtained by diving GDP of $14,738.0 billion in IIQ2010 by GDP of $14,356.9 billion in IIQ2009 {[$14,738.0/$14,356.9 -1]100 = 2.7%], or accumulating the quarter on quarter growth rates (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/09/mediocre-and-decelerating-united-states.html). The expansion from IQ1983 to IVQ1985 was at the average annual growth rate of 5.7 percent and at 7.8 percent from IQ1983 to IVQ1983 (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/09/mediocre-and-decelerating-united-states.html). As a result, there are 28.9 million unemployed or underemployed in the United States for an effective unemployment rate of 17.7 percent (Section II and earlier http://cmpassocregulationblog.blogspot.com/2013/10/twenty-eight-million-unemployed-or.html).
Zero interest rates and quantitative easing have not provided the impulse for growth and were not required in past successful cyclical expansions.
First, total nonfarm payroll employment seasonally adjusted (SA) increased 204,000 in Oct 2013 and private payroll employment rose 212,000. The average number of nonfarm jobs created in Jan-Oct 2012 was 172,700 while the average number of nonfarm jobs created in Jan-Sep 2013 was 186,300, or increase by 7.9 percent. The average number of private jobs created in the US in Jan-Oct 2012 was 178,900 while the average in Jan-Sep 2013 was 187,500, or increase by 4.8 percent. The US labor force increased from 153.617 million in 2011 to 154.975 million in 2012 by 1.358 million or 113,167 per month. The average increase of nonfarm jobs in the ten months from Jan to Oct 2013 was 186,300, which is a rate of job creation inadequate to reduce significantly unemployment and underemployment in the United States because of 113,167 new entrants in the labor force per month with 28.9 million unemployed or underemployed. The difference between the average increase of 186,300 new private nonfarm jobs per month in the US from Jan to Oct 2013 and the 113,167 average monthly increase in the labor force from 2011 to 2012 is 73,133 monthly new jobs net of absorption of new entrants in the labor force. There are 28.9 million in job stress in the US currently. Creation of 73,133 new jobs per month net of absorption of new entrants in the labor force would require 396 months to provide jobs for the unemployed and underemployed (28.942 million divided by 73,133) or 33 years (396 divided by 12). The civilian labor force of the US in Oct 2013 not seasonally adjusted stood at 155.918 million with 10.773 million unemployed or effectively 18.959 million unemployed in this blog’s calculation by inferring those who are not searching because they believe there is no job for them for effective labor force of 163.104 million. Reduction of one million unemployed at the current rate of job creation without adding more unemployment requires 1.1 years (1 million divided by product of 73.133 by 12, which is 877,596). Reduction of the rate of unemployment to 5 percent of the labor force would be equivalent to unemployment of only 7.746 million (0.05 times labor force of 154.918 million) for new net job creation of 3.027 million (10.773 million unemployed minus 7.746 million unemployed at rate of 5 percent) that at the current rate would take 3.4 years (3.027 million divided by 0.877596). Under the calculation in this blog, there are 18.959 million unemployed by including those who ceased searching because they believe there is no job for them and effective labor force of 163.104 million. Reduction of the rate of unemployment to 5 percent of the labor force would require creating 10.164 million jobs net of labor force growth that at the current rate would take 12.3 years (18.959 million minus 0.05(163.104 million) = 10.804 million divided by 0.877596, using LF PART 66.2% and Total UEM in Table I-4). These calculations assume that there are no more recessions, defying United States economic history with periodic contractions of economic activity when unemployment increases sharply. The number employed in Oct 2013 was 144.144 million (NSA) or 3.171 million fewer people with jobs relative to the peak of 147.315 million in Jul 2007 while the civilian noninstitutional population increased from 231.958 million in Jul 2007 to 246.381 million in Oct 2013 or by 14.423 million. The number employed fell 2.2 percent from Jul 2007 to Oct 2013 while population increased 6.2 percent. There is actually not sufficient job creation in merely absorbing new entrants in the labor force because of those dropping from job searches, worsening the stock of unemployed or underemployed in involuntary part-time jobs. The United States economy has grown at the average yearly rate of 3 percent per year and 2 percent per year in per capita terms from 1870 to 2010, as measured by Lucas (2011May). An important characteristic of the economic cycle in the US has been rapid growth in the initial phase of expansion after recessions. Inferior performance of the US economy and labor markets is the critical current issue of analysis and policy design.
Second, there are new calculations using the revision of US GDP and personal income data since 1929 by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_adv.pdf
http://bea.gov/newsreleases/national/gdp/2013/pdf/gdp2q13_adv.pdf http://bea.gov/newsreleases/national/pi/2013/pdf/pi0613.pdf) and the first estimate of GDP for IIIQ2013 (http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_adv.pdf). The average of 7.7 percent in the first four quarters of major cyclical expansions is in contrast with the rate of growth in the first four quarters of the expansion from IIIQ2009 to IIQ2010 of only 2.7 percent obtained by diving GDP of $14,738.0 billion in IIQ2010 by GDP of $14,356.9 billion in IIQ2009 {[$14,738.0/$14,356.9 -1]100 = 2.7%], or accumulating the quarter on quarter growth rates (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/09/mediocre-and-decelerating-united-states.html). The expansion from IQ1983 to IVQ1985 was at the average annual growth rate of 5.7 percent and at 7.8 percent from IQ1983 to IVQ1983 (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/09/mediocre-and-decelerating-united-states.html). As a result, there are 28.9 million unemployed or underemployed in the United States for an effective unemployment rate of 17.7 percent (Section II and earlier http://cmpassocregulationblog.blogspot.com/2013/10/twenty-eight-million-unemployed-or.html).
The economy of the US can be summarized in growth of economic activity or GDP as decelerating from mediocre growth of 2.5 percent on an annual basis in 2010 to 1.8 percent in 2011 to 2.8 percent in 2012. The following calculations show that actual growth is around 2.0 to 2.2 percent per year. This rate is well below 3 percent per year in trend from 1870 to 2010, which the economy of the US always attained for entire cycles in expansions after events such as wars and recessions (Lucas 2011May).
Revisions and enhancements of United States GDP and personal income accounts by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm http://bea.gov/newsreleases/national/gdp/2013/pdf/gdp2q13_adv.pdf http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp2q13_2nd.pdf http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp2q13_3rd.pdf http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0713.pdf http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0813.pdf http://bea.gov/newsreleases/national/pi/2013/pdf/pi0613.pdf http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_adv.pdf) provide important information on long-term growth and cyclical behavior. Table Summary provides relevant data.
- Long-term. US GDP grew at the average yearly rate of 3.3 percent from 1929 to 2012 and at 3.2 percent from 1947 to 2012. There were periodic contractions or recessions in this period but the economy grew at faster rates in the subsequent expansions, maintaining long-term economic growth at trend.
- Cycles. The combined contraction of GDP in the two almost consecutive recessions in the early 1980s is 4.7 percent. The contraction of US GDP from IVQ2007 to IIQ2009 during the global recession was 4.3 percent. The critical difference in the expansion is growth at average 7.8 percent in annual equivalent in the first four quarters of recovery from IQ1983 to IVQ1983. The average rate of growth of GDP in four cyclical expansions in the postwar period is 7.7 percent. In contrast, the rate of growth in the first four quarters from IIIQ2009 to IIQ2010 was only 2.7 percent. Average annual equivalent growth in the expansion from IQ1983 to IQ1986 was 5.7 percent. In contrast, average annual equivalent growth in the expansion from IIIQ2009 to IIIQ2013 was only 2.3 percent. The US appears to have lost its dynamism of income growth and employment creation.
Table Summary, Long-term and Cyclical Growth of GDP, Real Disposable Income and Real Disposable Income per Capita
| GDP | ||
| Long-Term | ||
| 1929-2012 | 3.3 | |
| 1947-2012 | 3.2 | |
| Cyclical Contractions ∆% | ||
| IQ1980 to IIIQ1980, IIIQ1981 to IVQ1982 | -4.7 | |
| IVQ2007 to IIQ2009 | -4.3 | |
| Cyclical Expansions Average Annual Equivalent ∆% | ||
| IQ1983 to IQ1986 IQ1983-IIIQ1986 IQ1983-IQ1986 IQ1983-IQ1987 | 5.7 5.4 5.2 5.0 | |
| First Four Quarters IQ1983 to IVQ1983 | 7.8 | |
| IIIQ2009 to IIIQ2013 | 2.3 | |
| First Four Quarters IIIQ2009 to IIQ2010 | 2.7 | |
| Real Disposable Income | Real Disposable Income per Capita | |
| Long-Term | ||
| 1929-2012 | 3.2 | 2.0 |
| 1947-1999 | 3.7 | 2.3 |
| Whole Cycles | ||
| 1980-1989 | 3.5 | 2.6 |
| 2006-2012 | 1.4 | 0.6 |
Source: Bureau of Economic Analysis http://www.bea.gov/iTable/index_nipa.cfm http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp2q13_3rd.pdf http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0813.pdf
http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_adv.pdf
The revisions and enhancements of United States GDP and personal income accounts by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm http://bea.gov/newsreleases/national/gdp/2013/pdf/gdp2q13_adv.pdf http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp2q13_2nd.pdf http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp2q13_3rd.pdf http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0713.pdf http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0813.pdf http://bea.gov/newsreleases/national/pi/2013/pdf/pi0613.pdf http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_adv.pdf) also provide critical information in assessing the current rhythm of US economic growth. The economy appears to be moving at a pace from 2.0 to 2.2 percent per year. Table Summary GDP provides the data.
1. Average Annual Growth in the Past Six Quarters. GDP growth in the four quarters of 2012 and the first three quarters of 2013 accumulated to 3.6 percent. This growth is equivalent to 2.0 percent per year, obtained by dividing GDP in IIIQ2013 of $15,790.1 by GDP in IVQ2011 of $15,242.1 and compounding by 4/7: {[($15,790.1/$15,242.1)4/6 -1]100 = 2.0.
2. Average Annual Growth in the First Three Quarters of 2013. GDP growth in the first three quarters of 2013 accumulated to 1.6 percent that is equivalent to 2.2 percent in a year. This is obtained by dividing GDP in IIIQ2013 of $15,790.1 by GDP in IVQ2012 of $15,539.6 and compounding by 4/3: {[($15,790.1/$15,539.6)4/3 -1]100 = 2.2%}. The US economy grew 1.6 percent in IIIQ2013 relative to the same quarter a year earlier in IIIQ2012. Another important revelation of the revisions and enhancements is that GDP was flat in IVQ2012, which is just at the borderline of contraction.
Table Summary GDP, US, Real GDP and Percentage Change Relative to IVQ2007 and Prior Quarter, Billions Chained 2005 Dollars and ∆%
| Real GDP, Billions Chained 2005 Dollars | ∆% Relative to IVQ2007 | ∆% Relative to Prior Quarter | ∆% | |
| IVQ2007 | 14,996.1 | NA | NA | 1.9 |
| IVQ2011 | 15,242.1 | 1.6 | 1.2 | 2.0 |
| IQ2012 | 15,381.6 | 2.6 | 0.9 | 3.3 |
| IIQ2012 | 15,427.7 | 2.9 | 0.3 | 2.8 |
| IIIQ2012 | 15,534.0 | 3.6 | 0.7 | 3.1 |
| IVQ2012 | 15,539.6 | 3.6 | 0.0 | 2.0 |
| IQ2013 | 15,583.9 | 3.9 | 0.3 | 1.3 |
| IIQ2013 | 15,679.7 | 4.6 | 0.6 | 1.6 |
| Cumulative ∆% IQ2012 to IIQ2013 | 2.9 | 2.8 | ||
| Annual Equivalent ∆% | 1.9 | 1.9 |
Source: US Bureau of Economic Analysis http://www.bea.gov/iTable/index_nipa.cfm http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp2q13_3rd.pdf
In fact, it is evident to the public that this policy will be abandoned if inflation costs rise. There is concern of the production and employment costs of controlling future inflation. Even if there is no inflation, QE→∞ cannot be abandoned because of the fear of rising interest rates. The economy would operate in an inferior allocation of resources and suboptimal growth path, or interior point of the production possibilities frontier where the optimum of productive efficiency and wellbeing is attained, because of the distortion of risk/return decisions caused by perpetual financial repression. Not even a second-best allocation is feasible with the shocks to efficiency of financial repression in perpetuity.
The statement of the FOMC at the conclusion of its meeting on Dec 12, 2012, revealed policy intentions (http://www.federalreserve.gov/newsevents/press/monetary/20121212a.htm) practically unchanged in the statement at the conclusion of its meeting on Jan 30, 2013 (http://www.federalreserve.gov/newsevents/press/monetary/20130130a.htm) and at its meeting on Oct 30, 2013 (http://www.federalreserve.gov/newsevents/press/monetary/20131030a.htm):
“Press Release
Release Date: October 30, 2013
For immediate release
Information received since the Federal Open Market Committee met in September generally suggests that economic activity has continued to expand at a moderate pace. Indicators of labor market conditions have shown some further improvement, but the unemployment rate remains elevated. Available data suggest that household spending and business fixed investment advanced, while the recovery in the housing sector slowed somewhat in recent months. Fiscal policy is restraining economic growth. Apart from fluctuations due to changes in energy prices, inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic growth will pick up from its recent pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished, on net, since last fall. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term.
Taking into account the extent of federal fiscal retrenchment over the past year, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases. Accordingly, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate.
The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. In judging when to moderate the pace of asset purchases, the Committee will, at its coming meetings, assess whether incoming information continues to support the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective. Asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's economic outlook as well as its assessment of the likely efficacy and costs of such purchases.
To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Charles L. Evans; Jerome H. Powell; Eric S. Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.”
There are several important issues in this statement.
- Mandate. The FOMC pursues a policy of attaining its “dual mandate” of (http://www.federalreserve.gov/aboutthefed/mission.htm):
“Conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates”
- Open-ended Quantitative Easing or QE∞. Earlier programs are continued with an additional open-ended $85 billion of bond purchases per month: “However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases. Accordingly, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate.”
- Advance Guidance on “6 ¼ 2 ½ “Rule. Policy will be accommodative even after the economy recovers satisfactorily: “To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.”
- Monitoring and Policy Focus on Jobs. The FOMC reconsiders its policy continuously in accordance with available information: “In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.”
- No Present Course of Asset Purchases. Market participants focused on slightly different wording about asset purchases: “In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.”
- Growth. “The Committee expects that, with appropriate policy accommodation, economic growth will pick up from its recent pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate.”
Current focus is on tapering quantitative easing by the Federal Open Market Committee (FOMC). There is sharp distinction between the two measures of unconventional monetary policy: (1) fixing of the overnight rate of fed funds at 0 to ¼ percent; and (2) outright purchase of Treasury and agency securities and mortgage-backed securities for the balance sheet of the Federal Reserve. Market are overreacting to the so-called “paring” of outright purchases of $85 billion of securities per month for the balance sheet of the Fed. What is truly important is the fixing of the overnight fed funds at 0 to ¼ percent for which there is no end in sight as evident in the FOMC statement for Oct 30, 2013 (http://www.federalreserve.gov/newsevents/press/monetary/20131030a.htm):
“To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent.” (emphasis added).
There is a critical phrase in the statement of Sep 19, 2013 (http://www.federalreserve.gov/newsevents/press/monetary/20130918a.htm): “but mortgage rates have risen further.” Did the increase of mortgage rates influence the decision of the FOMC not to taper? Is FOMC “communication” and “guidance” successful?
At the confirmation hearing on nomination for Chair of the Board of Governors of the Federal Reserve System, Vice Chair Yellen (2013Nov14 http://www.federalreserve.gov/newsevents/testimony/yellen20131114a.htm), states needs and intentions of policy:
“We have made good progress, but we have farther to go to regain the ground lost in the crisis and the recession. Unemployment is down from a peak of 10 percent, but at 7.3 percent in October, it is still too high, reflecting a labor market and economy performing far short of their potential. At the same time, inflation has been running below the Federal Reserve's goal of 2 percent and is expected to continue to do so for some time.
For these reasons, the Federal Reserve is using its monetary policy tools to promote a more robust recovery. A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases. I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy.”
In delivering the biannual report on monetary policy (Board of Governors 2013Jul17), Chairman Bernanke (2013Jul17) advised Congress that:
“Instead, we are providing additional policy accommodation through two distinct yet complementary policy tools. The first tool is expanding the Federal Reserve's portfolio of longer-term Treasury securities and agency mortgage-backed securities (MBS); we are currently purchasing $40 billion per month in agency MBS and $45 billion per month in Treasuries. We are using asset purchases and the resulting expansion of the Federal Reserve's balance sheet primarily to increase the near-term momentum of the economy, with the specific goal of achieving a substantial improvement in the outlook for the labor market in a context of price stability. We have made some progress toward this goal, and, with inflation subdued, we intend to continue our purchases until a substantial improvement in the labor market outlook has been realized. We are relying on near-zero short-term interest rates, together with our forward guidance that rates will continue to be exceptionally low--our second tool--to help maintain a high degree of monetary accommodation for an extended period after asset purchases end, even as the economic recovery strengthens and unemployment declines toward more-normal levels. In appropriate combination, these two tools can provide the high level of policy accommodation needed to promote a stronger economic recovery with price stability.
The Committee's decisions regarding the asset purchase program (and the overall stance of monetary policy) depend on our assessment of the economic outlook and of the cumulative progress toward our objectives. Of course, economic forecasts must be revised when new information arrives and are thus necessarily provisional.”
Friedman (1953) argues there are three lags in effects of monetary policy: (1) between the need for action and recognition of the need; (2) the recognition of the need and taking of actions; and (3) taking of action and actual effects. Friedman (1953) finds that the combination of these lags with insufficient knowledge of the current and future behavior of the economy causes discretionary economic policy to increase instability of the economy or standard deviations of real income σy and prices σp. Policy attempts to circumvent the lags by policy impulses based on forecasts. We are all naïve about forecasting. Data are available with lags and revised to maintain high standards of estimation. Policy simulation models estimate economic relations with structures prevailing before simulations of policy impulses such that parameters change as discovered by Lucas (1977). Economic agents adjust their behavior in ways that cause opposite results from those intended by optimal control policy as discovered by Kydland and Prescott (1977). Advance guidance attempts to circumvent expectations by economic agents that could reverse policy impulses but is of dubious effectiveness. There is strong case for using rules instead of discretionary authorities in monetary policy (http://cmpassocregulationblog.blogspot.com/search?q=rules+versus+authorities).
The key policy is maintaining fed funds rate between 0 and ¼ percent. An increase in fed funds rates could cause flight out of risk financial markets worldwide. There is no exit from this policy without major financial market repercussions. Indefinite financial repression induces carry trades with high leverage, risks and illiquidity.
Unconventional monetary policy drives wide swings in allocations of positions into risk financial assets that generate instability instead of intended pursuit of prosperity without inflation. There is insufficient knowledge and imperfect tools to maintain the gap of actual relative to potential output constantly at zero while restraining inflation in an open interval of (1.99, 2.0). Symmetric targets appear to have been abandoned in favor of a self-imposed single jobs mandate of easing monetary policy even with the economy growing at or close to potential output that is actually a target of growth forecast. The impact on the overall economy and the financial system of errors of policy are magnified by large-scale policy doses of trillions of dollars of quantitative easing and zero interest rates. The US economy has been experiencing financial repression as a result of negative real rates of interest during nearly a decade and programmed in monetary policy statements until 2015 or, for practical purposes, forever. The essential calculus of risk/return in capital budgeting and financial allocations has been distorted. If economic perspectives are doomed until 2015 such as to warrant zero interest rates and open-ended bond-buying by “printing” digital bank reserves (http://cmpassocregulationblog.blogspot.com/2010/12/is-fed-printing-money-what-are.html; see Shultz et al 2012), rational investors and consumers will not invest and consume until just before interest rates are likely to increase. Monetary policy statements on intentions of zero interest rates for another three years or now virtually forever discourage investment and consumption or aggregate demand that can increase economic growth and generate more hiring and opportunities to increase wages and salaries. The doom scenario used to justify monetary policy accentuates adverse expectations on discounted future cash flows of potential economic projects that can revive the economy and create jobs. If it were possible to project the future with the central tendency of the monetary policy scenario and monetary policy tools do exist to reverse this adversity, why the tools have not worked before and even prevented the financial crisis? If there is such thing as “monetary policy science”, why it has such poor record and current inability to reverse production and employment adversity? There is no excuse of arguing that additional fiscal measures are needed because they were deployed simultaneously with similar ineffectiveness.
In remarkable anticipation in 2005, Professor Raghuram G. Rajan (2005) warned of low liquidity and high risks of central bank policy rates approaching the zero bound (Pelaez and Pelaez, Regulation of Banks and Finance (2009b), 218-9). Professor Rajan excelled in a distinguished career as an academic economist in finance and was chief economist of the International Monetary Fund (IMF). Shefali Anand and Jon Hilsenrath, writing on Oct 13, 2013, on “India’s central banker lobbies Fed,” published in the Wall Street Journal (http://online.wsj.com/news/articles/SB10001424052702304330904579133530766149484?KEYWORDS=Rajan), interviewed Raghuram G Rajan, who is the current Governor of the Reserve Bank of India, which is India’s central bank (http://www.rbi.org.in/scripts/AboutusDisplay.aspx). In this interview, Rajan argues that central banks should avoid unintended consequences on emerging market economies of inflows and outflows of capital triggered by monetary policy. Portfolio reallocations induced by combination of zero interest rates and risk events stimulate carry trades that generate wide swings in world capital flows.
Professor Ronald I. McKinnon (2013Oct27), writing on “Tapering without tears—how to end QE3,” on Oct 27, 2013, published in the Wall Street Journal (http://online.wsj.com/news/articles/SB10001424052702304799404579153693500945608?KEYWORDS=Ronald+I+McKinnon), finds that the major central banks of the world have fallen into a “near-zero-interest-rate trap.” World economic conditions are weak such that exist from the zero interest rate trap could have adverse effects on production, investment and employment. The maintenance of interest rates near zero creates long-term near stagnation. The proposal of Professor McKinnon is credible, coordinated increase of policy interest rates toward 2 percent. Professor John B. Taylor at Stanford University, writing on “Economic failures cause political polarization,” on Oct 28, 2013, published in the Wall Street Journal (http://online.wsj.com/news/articles/SB10001424052702303442004579121010753999086?KEYWORDS=John+B+Taylor), analyzes that excessive risks induced by near zero interest rates in 2003-2004 caused the financial crash. Monetary policy continued in similar paths during and after the global recession with resulting political polarization worldwide.
Table IV-2 provides economic projections of governors of the Board of Governors of the Federal Reserve and regional presidents of Federal Reserve Banks released at the meeting of Sep 18, 2013. The Fed releases the data with careful explanations (http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20130320.pdf). Columns “∆% GDP,” “∆% PCE Inflation” and “∆% Core PCE Inflation” are changes “from the fourth quarter of the previous year to the fourth quarter of the year indicated.” The GDP report for IIIQ2013 is analyzed in Section I (http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html http://cmpassocregulationblog.blogspot.com/2013/09/mediocre-and-decelerating-united-states.html) and the PCE inflation data from the report on personal income and outlays in Section IV (http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html http://cmpassocregulationblog.blogspot.com/2013/09/mediocre-and-decelerating-united-states.html). The Bureau of Economic Analysis (BEA) provides the estimate of IIQ2013 GDP released on Sep 26 with revisions since 1929 (http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm http://cmpassocregulationblog.blogspot.com/2013/09/mediocre-and-decelerating-united-states.html). The BEA provides the first estimate of IIIQ2013 GDP released on Nov 8, 2013 (http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html). PCE inflation is the index of personal consumption expenditures (PCE) of the report of the Bureau of Economic Analysis (BEA) on “Personal Income and Outlays” (http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm), which is analyzed in Section IV (http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html http://cmpassocregulationblog.blogspot.com/2013/09/mediocre-and-decelerating-united-states.html). The report on “Personal Income and Outlays” for Sep 2013 was released on Nov 8, 2013 (http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html and earlier http://cmpassocregulationblog.blogspot.com/2013/09/mediocre-and-decelerating-united-states.html). PCE core inflation consists of PCE inflation excluding food and energy. Column “UNEMP %” is the rate of unemployment measured as the average civilian unemployment rate in the fourth quarter of the year. The Bureau of Labor Statistics (BLS) provides the Employment Situation Report with the civilian unemployment rate in the first Friday of every month, which is analyzed in this blog. The report for Jul 2013 was released on Aug 2 and analyzed in this blog and the report for Aug 2013 was released on Sep 6, 2013 (http://cmpassocregulationblog.blogspot.com/2013/09/twenty-eight-million-unemployed-or.html
and earlier http://cmpassocregulationblog.blogspot.com/2013/08/risks-of-steepening-yield-curve-and.html). The report for Sep 2013 was released on Oct 22, 2013 (http://cmpassocregulationblog.blogspot.com/2013/10/twenty-eight-million-unemployed-or.html
and earlier http://cmpassocregulationblog.blogspot.com/2013/10/twenty-eight-million-unemployed-or.html). The report for Oct 2013 was released on Nov 8, 2013 (http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html). “Longer term projections represent each participant’s assessment of the rate to which each variable would be expected to converge under appropriate monetary policy and in the absence of further shocks to the economy” (http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20121212.pdf).
It is instructive to focus on 2013 and 2014 because 2015, 2016 and longer term are too far away, and there is not much information even on what will happen in 2013-2014 and beyond. The central tendency should provide reasonable approximation of the view of the majority of members of the FOMC but the second block of numbers provides the range of projections by FOMC participants. The first row for each year shows the projection introduced after the meeting of Sep 18, 2013 and the second row “PR” the projection of the Jun 19, 2013 meeting. There are three major changes in the view.
1. Growth “∆% GDP.” The FOMC has reduced the forecast of GDP growth in 2013 from 2.3 to 2.6 percent at the meeting in Jun 2013 to 2.0 to 2.3 percent at the meeting on Sep 18, 2013. The FOMC decreased GDP growth in 2014 from 3.0 to 3.5 percent at the meeting in Jun 2013 to 2.9 to 3.1 percent at the meeting in Sep 2013.
2. Rate of Unemployment “UNEM%.” The FOMC reduced the forecast of the rate of unemployment from 7.2 to 7.3 percent at the meeting on Jun 19, 2013 to 7.1 to 7.3 percent at the meeting on Sep 18, 2013. The projection for 2014 decreased to the range of 6.4 to 6.8 in Sep 2013 from 6.5 to 6.8 in Jun 2013. Projections of the rate of unemployment are moving closer to the desire 6.5 percent or lower with 5.9 to 6.2 percent in 2015 after the meeting on Sep 18, 2013.
3. Inflation “∆% PCE Inflation.” The FOMC changed the forecast of personal consumption expenditures (PCE) inflation from 0.8 to 1.2 percent at the meeting on Jun 19, 2012 to 1.1 to 1.2 percent at the meeting on Sep 18, 2013. There are no projections exceeding 2.0 percent in the central tendency but some in the range reach 2.3 percent in 2015 and 2015. The longer run projection is at 2.0 percent.
4. Core Inflation “∆% Core PCE Inflation.” Core inflation is PCE inflation excluding food and energy. There is again not much of a difference of the projection, changing from 1.2 to 1.3 percent at the meeting on Jun 19, 2013 to 1.2 to 1.3 percent at the meeting Sep 13, 2013. In 2014, there is minor change in the projection from 1.5 to 1.8 percent in Jun 19, 2013 to 1.5 to 1.7 percent in Sep 18, 2013. The rate of change of the core PCE is below 2.0 percent in the central tendency with 2.3 percent at the top of the range in 2015 and 2016.
Table IV-2, US, Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents in FOMC, Mar 2013 and Jun 19, 2013
| ∆% GDP | UNEM % | ∆% PCE Inflation | ∆% Core PCE Inflation | |
| Central | ||||
| 2013 | 2.0 to 2.3 | 7.1 to 7.3 | 1.1 to 1.2 | 1.2 to 1.3 1.2 to 1.3 |
| 2014 | 2.9 to 3.1 | 6.4 to 6.8 | 1.3 to 1.8 | 1.5 to 1.7 |
| 2015 Jun PR | 3.0 to 3.5 2.9 to 3.6 | 5.9 to 6.2 5.8 to 6.2 | 1.6 to 2.0 1.7 to 2.0 | 1.7 to 2.0 1.7 to 2.0 |
| 2016 Jun PR | 2.5 to 3.3 NA | 5.4 to 5.9 NA | 1.7 to 2.0 NA | 1.9 to 2.0 NA |
| Longer Run Jun PR | 2.2 to 2.5 2.3 to 2.5 | 5.2 to 5.8 5.2 to 6.0 | 2.0 2.0 | |
| Range | ||||
| 2013 | 1.8 to 2.4 | 6.9 to 7.3 | 1.0 to 1.3 | 1.2 to 1.4 |
| 2014 | 2.2 to 3.3 | 6.2 to 6.9 | 1.2 to 2.0 | 1.4 to 2.0 |
| 2015 Jun PR | 2.2 to 3.7 2.3 to 3.8 | 5.3 to 6.3 5.7 to 6.4 | 1.4 to 2.3 1.6 to 2.3 | 1.6 to 2.3 1.7 to 2.3 |
| 2016 Jun PR | 2.2 to 3.5 NA | 5.2 to 6.0 NA | 1.5 to 2.3 NA | 1.7 to 2.3 NA |
| Longer Run Jun PR | 2.1 to 2.5 2.0 to 3.0 | 5.2 to 6.0 5.0 to 6.0 | 2.0 2.0 |
Notes: UEM: unemployment; PR: Projection
Source: Board of Governors of the Federal Reserve System, FOMC
http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20130918.pdf
Another important decision at the FOMC meeting on Jan 25, 2012, is formal specification of the goal of inflation of 2 percent per year but without specific goal for unemployment (http://www.federalreserve.gov/newsevents/press/monetary/20120125c.htm):
“Following careful deliberations at its recent meetings, the Federal Open Market Committee (FOMC) has reached broad agreement on the following principles regarding its longer-run goals and monetary policy strategy. The Committee intends to reaffirm these principles and to make adjustments as appropriate at its annual organizational meeting each January.
The FOMC is firmly committed to fulfilling its statutory mandate from the Congress of promoting maximum employment, stable prices, and moderate long-term interest rates. The Committee seeks to explain its monetary policy decisions to the public as clearly as possible. Such clarity facilitates well-informed decision making by households and businesses, reduces economic and financial uncertainty, increases the effectiveness of monetary policy, and enhances transparency and accountability, which are essential in a democratic society.
Inflation, employment, and long-term interest rates fluctuate over time in response to economic and financial disturbances. Moreover, monetary policy actions tend to influence economic activity and prices with a lag. Therefore, the Committee's policy decisions reflect its longer-run goals, its medium-term outlook, and its assessments of the balance of risks, including risks to the financial system that could impede the attainment of the Committee's goals.
The inflation rate over the longer run is primarily determined by monetary policy, and hence the Committee has the ability to specify a longer-run goal for inflation. The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory mandate. Communicating this inflation goal clearly to the public helps keep longer-term inflation expectations firmly anchored, thereby fostering price stability and moderate long-term interest rates and enhancing the Committee's ability to promote maximum employment in the face of significant economic disturbances.
The maximum level of employment is largely determined by nonmonetary factors that affect the structure and dynamics of the labor market. These factors may change over time and may not be directly measurable. Consequently, it would not be appropriate to specify a fixed goal for employment; rather, the Committee's policy decisions must be informed by assessments of the maximum level of employment, recognizing that such assessments are necessarily uncertain and subject to revision. The Committee considers a wide range of indicators in making these assessments. Information about Committee participants' estimates of the longer-run normal rates of output growth and unemployment is published four times per year in the FOMC's Summary of Economic Projections. For example, in the most recent projections, FOMC participants' estimates of the longer-run normal rate of unemployment had a central tendency of 5.2 percent to 6.0 percent, roughly unchanged from last January but substantially higher than the corresponding interval several years earlier.
In setting monetary policy, the Committee seeks to mitigate deviations of inflation from its longer-run goal and deviations of employment from the Committee's assessments of its maximum level. These objectives are generally complementary. However, under circumstances in which the Committee judges that the objectives are not complementary, it follows a balanced approach in promoting them, taking into account the magnitude of the deviations and the potentially different time horizons over which employment and inflation are projected to return to levels judged consistent with its mandate. ”
The probable intention of this specific inflation goal is to “anchor” inflationary expectations. Massive doses of monetary policy of promoting growth to reduce unemployment could conflict with inflation control. Economic agents could incorporate inflationary expectations in their decisions. As a result, the rate of unemployment could remain the same but with much higher rate of inflation (see Kydland and Prescott 1977 and Barro and Gordon 1983; http://cmpassocregulationblog.blogspot.com/2011/05/slowing-growth-global-inflation-great.html http://cmpassocregulationblog.blogspot.com/2011/04/new-economics-of-rose-garden-turned.html http://cmpassocregulationblog.blogspot.com/2011/03/is-there-second-act-of-us-great.html See Pelaez and Pelaez, Regulation of Banks and Finance (2009b), 99-116). Strong commitment to maintaining inflation at 2 percent could control expectations of inflation.
The FOMC continues its efforts of increasing transparency that can improve the credibility of its firmness in implementing its dual mandate. Table IV-3 provides the views by participants of the FOMC of the levels at which they expect the fed funds rate in 2013, 2014, 2015, 2016 and the in the longer term. Table IV-3 is inferred from a chart provided by the FOMC with the number of participants expecting the target of fed funds rate (http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20130320.pdf). There are 17 participants expecting the rate to remain at 0 to ¼ percent in 2013. The rate would still remain at 0 to ¼ percent in 2014 for 13 participants with three expecting the rate to be in the range of 0.5 to 1.0 percent and one participant expecting rates at 1.0 to 1.5 percent. This table is consistent with the guidance statement of the FOMC that rates will remain at low levels. For 2015, eight participants expect rates to be below or at 1.0 percent while six expect rates from 1.0 to 1.5 percent and three expecting rates in excess of 2.0 percent. For 2016, nine participants expect rates between 1.0 and 2.0 percent, four between 2.0 and 3.0 percent and three between 3.0 and 4.4 percent. In the long term, all 17 participants expect the fed funds rate in the range of 3.0 to 4.5 percent.
Table IV-3, US, Views of Target Federal Funds Rate at Year-End of Federal Reserve Board
Members and Federal Reserve Bank Presidents Participating in FOMC, Jun 19, 2013
| 0 to 0.25 | 0.5 to 1.0 | 1.0 to 1.5 | 1.0 to 2.0 | 2.0 to 3.0 | 3.0 to 4.5 | |
| 2013 | 17 | |||||
| 2014 | 13 | 3 | 1 | |||
| 2015 | 8 | 6 | 3 | |||
| 2016 | 1 | 9 | 4 | 3 | ||
| Longer Run | 17 |
Source: Board of Governors of the Federal Reserve System, FOMC
http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20130918.pdf
Additional information is provided in Table IV-4 with the number of participants expecting increasing interest rates in the years from 2013 to 2016. It is evident from Table IV-4 that the prevailing view of the FOMC is for interest rates to continue at low levels in future years. This view is consistent with the economic projections of low economic growth, relatively high unemployment and subdued inflation provided in Table IV-2. The FOMC states that rates will continue to be low even after return of the economy to potential growth.
Table IV-4, US, Views of Appropriate Year of Increasing Target Federal Funds Rate of Federal
Reserve Board Members and Federal Reserve Bank Presidents Participating in FOMC, June 19, 2013
| Appropriate Year of Increasing Target Fed Funds Rate | Number of Participants |
| 2014 | 3 |
| 2015 | 12 |
| 2016 | 2 |
Source: Board of Governors of the Federal Reserve System, FOMC
http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20130918.pdf
There are two categories of responses in the Empire State Manufacturing Survey of the Federal Reserve Bank of New York (http://www.newyorkfed.org/survey/empire/empiresurvey_overview.html): current conditions and expectations for the next six months. There are responses in the survey for two types of prices: prices received or inputs of production and prices paid or sales prices of products. Table IV-5 provides indexes for the two categories and within them for the two types of prices from Jan 2011 to Nov 2013. The index of current prices paid or costs of inputs increased from 16.13 in Dec 2012 to 17.11 in Nov 2013 while the index of current prices received or sales prices decreased from 1.08 in Dec 2012 to minus 3.95 in Nov 2013. The index of future prices paid or expectations of costs of inputs in the next six months fell from 51.61 in Dec 2012 to 42.11 in Nov 2013 while the index of future prices received or expectation of sales prices in the next six months fell from 25.81 in Dec 2012 to 17.11 in Nov 2013. Prices of sales of finished products are less dynamic than prices of costs of inputs during waves of increases. Prices of costs of costs of inputs fall less rapidly than prices of sales of finished products during waves of price decreases. As a result, margins of prices of sales less costs of inputs oscillate with typical deterioration against producers, forcing companies to manage tightly costs and labor inputs.
Table IV-5, US, FRBNY Empire State Manufacturing Survey, Diffusion Indexes, Prices Paid and Prices Received, SA
| Current Prices Paid | Current Prices Received | Six Months Prices Paid | Six Months Prices Received | |
| Nov 2013 | 17.11 | -3.95 | 42.11 | 17.11 |
| Oct | 21.69 | 2.41 | 45.78 | 25.30 |
| Sep | 21.51 | 8.60 | 39.78 | 24.73 |
| Aug | 20.48 | 3.61 | 40.96 | 19.28 |
| Jul | 17.39 | 1.09 | 28.26 | 11.96 |
| Jun | 20.97 | 11.29 | 45.16 | 17.74 |
| May | 20.45 | 4.55 | 29.55 | 14.77 |
| Apr | 28.41 | 5.68 | 44.32 | 14.77 |
| Mar | 25.81 | 2.15 | 50.54 | 23.66 |
| Feb | 26.26 | 8.08 | 44.44 | 13.13 |
| Jan | 22.58 | 10.75 | 38.71 | 21.51 |
| Dec 2012 | 16.13 | 1.08 | 51.61 | 25.81 |
| Nov | 14.61 | 5.62 | 39.33 | 15.73 |
| Oct | 17.20 | 4.30 | 44.09 | 24.73 |
| Sep | 19.15 | 5.32 | 40.43 | 23.40 |
| Aug | 16.47 | 2.35 | 31.76 | 14.12 |
| Jul | 7.41 | 3.70 | 35.80 | 16.05 |
| Jun | 19.59 | 1.03 | 34.02 | 17.53 |
| May | 37.35 | 12.05 | 57.83 | 22.89 |
| Apr | 45.78 | 19.28 | 50.60 | 22.89 |
| Mar | 50.62 | 13.58 | 66.67 | 32.10 |
| Feb | 25.88 | 15.29 | 62.35 | 34.12 |
| Jan | 26.37 | 23.08 | 53.85 | 30.77 |
| Dec 2011 | 24.42 | 3.49 | 56.98 | 36.05 |
| Nov | 18.29 | 6.10 | 36.59 | 25.61 |
| Oct | 22.47 | 4.49 | 40.45 | 17.98 |
| Sep | 32.61 | 8.70 | 53.26 | 22.83 |
| Aug | 28.26 | 2.17 | 42.39 | 15.22 |
| Jul | 43.33 | 5.56 | 51.11 | 30.00 |
| Jun | 56.12 | 11.22 | 55.10 | 19.39 |
| May | 69.89 | 27.96 | 68.82 | 35.48 |
| Apr | 57.69 | 26.92 | 56.41 | 38.46 |
| Mar | 53.25 | 20.78 | 71.43 | 36.36 |
| Feb | 45.78 | 16.87 | 55.42 | 27.71 |
| Jan | 35.79 | 15.79 | 60.00 | 42.11 |
Source: http://www.newyorkfed.org/survey/empire/empiresurvey_overview.html
China is experiencing similar inflation behavior as the advanced economies in several prior months in the form of declining commodity prices but differs in decreasing inflation of producer prices relative to a year earlier. As shown in Table IV-6, inflation of the price indexes for industry in Oct 2013 is 0.0 percent; 12-month inflation is minus 1.5 percent in Oct; and cumulative inflation in Jan-Oct 2013 relative to Jan-Oct 2012 is minus 2.0 percent. Inflation of segments in Oct 2013 in China is provided in Table IV-9 in column “Month Oct 2013 ∆%.” There were increases of prices of mining & quarrying of 0.7 percent in Oct and decrease of 4.1 percent in 12 months. Prices of consumer goods increased 0.1 percent in Oct and changed 0.0 percent in 12 months. Prices of inputs in the purchaser price index increased 0.1 percent in Oct and declined 1.6 percent in 12 months. Fuel and power increased 0.2 percent in Oct and declined 2.9 percent in 12 months. An important category of inputs for exports is textile raw materials, changing 0.0 percent in Oct and increasing 0.6 percent in 12 months.
Table IV-6, China, Price Indexes for Industry ∆%
| Month Oct 2013 ∆% | 12-Month Oct 2013 ∆% | Jan-Oct 2013/Jan-Oct 2012 ∆% | |
| I Producer Price Indexes | 0.0 | -1.5 | -2.0 |
| Means of Production | 0.0 | -2.0 | -2.7 |
| Mining & Quarrying | 0.7 | -4.1 | -6.0 |
| Raw Materials | -0.1 | -2.6 | -3.2 |
| Processing | -0.1 | -1.5 | -2.2 |
| Consumer Goods | 0.1 | 0.0 | 0.2 |
| Food | 0.1 | 0.5 | 0.7 |
| Clothing | 0.3 | 1.2 | 1.2 |
| Daily Use Articles | 0.0 | -0.6 | -0.1 |
| Durable Consumer Goods | 0.0 | -1.1 | -0.9 |
| II Purchaser Price Indexes | 0.1 | -1.6 | -2.1 |
| Fuel and Power | 0.2 | -2.9 | -3.6 |
| Ferrous Metals | -0.3 | -1.5 | -4.7 |
| Nonferrous Metals | 0.0 | -6.2 | -4.4 |
| Chemical Raw Materials | 0.2 | -2.3 | -2.9 |
| Wood & Pulp | -0.1 | -0.3 | -0.5 |
| Building Materials | 0.4 | -1.1 | -1.4 |
| Other Industrial Raw Materials | 0.0 | -1.0 | -0.9 |
| Agricultural | 0.0 | 1.5 | 1.7 |
| Textile Raw Materials | 0.0 | 0.6 | -0.2 |
Source: National Bureau of Statistics of China http://www.stats.gov.cn/english/
China’s producer price inflation follows waves similar to those around the world but with declining trend since May 2012, as shown in Table IV-7. In the first wave, annual equivalent inflation was 6.4 percent in Jan-Jun 2011, driven by carry trades from zero interest rates to commodity futures. In the second wave, risk aversion unwound carry trades, resulting in annual equivalent inflation of minus 3.1 percent in Jul-Nov 2011. In the third wave, renewed risk aversion resulted in annual equivalent inflation of minus 2.4 percent in Dec 2011-Jan 2012. In the fourth wave, new carry trades resulted in annual equivalent inflation of 2.4 percent in Feb-Apr 2012. In the fifth wave, annual equivalent inflation is minus 5.8 percent in May-Sep 2012. There are declining producer prices in China in Aug-Sep 2012 in contrast with increases worldwide. In a sixth wave, producer prices increased 0.2 percent in Oct 2012, which is equivalent to 2.4 percent in a year. In an eighth wave, annual equivalent inflation was minus 1.2 percent in Nov-Dec 2012. In the ninth wave, annual equivalent inflation in Jan-Feb 2013 is 2.4 percent. In the tenth wave, annual equivalent inflation was minus 4.9 percent in Mar-Jul 2013. In the eleventh wave, annual equivalent inflation was 1.2 percent in Aug-Oct 2013.
Table IV-7, China, Month and 12-Month Rate of Change of Producer Price Index, ∆%
| 12-Month ∆% | Month ∆% | |
| Oct 2013 | -1.5 | 0.0 |
| Sep | -1.3 | 0.2 |
| Aug | -1.6 | 0.1 |
| AE ∆% Aug-Oct | 1.2 | |
| Jul | -2.3 | -0.3 |
| Jun | -2.7 | -0.6 |
| May | -2.9 | -0.6 |
| Apr | -2.6 | -0.6 |
| Mar | -1.9 | 0.0 |
| AE ∆% Mar-Jul | -4.9 | |
| Feb | -1.6 | 0.2 |
| Jan | -1.6 | 0.2 |
| AE ∆% Jan-Feb | 2.4 | |
| Dec 2012 | -1.9 | -0.1 |
| Nov | -2.2 | -0.1 |
| AE ∆% Nov-Dec | -1.2 | |
| Oct | -2.8 | 0.2 |
| AE ∆% Oct | 2.4 | |
| Sep | -3.6 | -0.1 |
| Aug | -3.5 | -0.5 |
| Jul | -2.9 | -0.8 |
| Jun | -2.1 | -0.7 |
| May | -1.4 | -0.4 |
| AE ∆% May-Sep | -5.8 | |
| Apr | -0.7 | 0.2 |
| Mar | -0.3 | 0.3 |
| Feb | 0.0 | 0.1 |
| AE ∆% Feb-Apr | 2.4 | |
| Jan | 0.7 | -0.1 |
| Dec 2011 | 1.7 | -0.3 |
| AE ∆% Dec-Jan | -2.4 | |
| Nov | 2.7 | -0.7 |
| Oct | 5.0 | -0.7 |
| Sep | 6.5 | 0.0 |
| Aug | 7.3 | 0.1 |
| Jul | 7.5 | 0.0 |
| AE ∆% Jul-Nov | -3.1 | |
| Jun | 7.1 | 0.0 |
| May | 6.8 | 0.3 |
| Apr | 6.8 | 0.5 |
| Mar | 7.3 | 0.6 |
| Feb | 7.2 | 0.8 |
| Jan | 6.6 | 0.9 |
| AE ∆% Jan-Jun | 6.4 | |
| Dec 2010 | 5.9 | 0.7 |
AE: Annual Equivalent
Source: National Bureau of Statistics of China
http://www.stats.gov.cn/english/
Chart IV-1 of the National Bureau of Statistics of China provides monthly and 12-month rates of inflation of the price indexes for the industrial sector. Negative monthly rates in Oct, Nov, Dec 2011, Jan, Mar, Apr, May, Jun, Jul, Aug, Sep, Nov and Dec 2012 pulled down the 12-month rates to 5.0 percent in Oct 2011, 2.7 percent in Nov, 1.7 percent in Dec, 0.7 percent in Jan 2012, 0.0 percent in Feb, minus 0.3 percent in Mar, minus 0.7 percent in Apr, minus 1.4 percent in May, 2.1 in Jun, minus 2.9 percent in Jul, minus 3.5 percent in Aug, minus 3.6 percent in Sep. The increase of 0.2 percent in Oct 2012 pulled up the 12-month rate to minus 2.8 percent and the rate eased to minus 2.2 percent in Nov 2012 and minus 1.9 percent in Dec 2012. Increases of 0.2 percent in Jan and Feb 2013 pulled the 12-month rate to minus 1.6 percent while no change in Mar 2013 brought down the 12-month rate to minus 1.9 percent. Declines of prices of 0.6 percent in Apr, May and Jun 2013 pushed the 12-month rate to minus 2.7 percent. Producer prices fell 2.3 percent in the 12 months ending in Jul 2013 and minus 1.6 percent in Aug 2013 with increase of 0.1 percent in the month of Aug 2013. Producer price inflation was minus 1.3 percent in the 12 months ending in Sep 2013 and minus 1.5 percent in the 12 months ending in Oct 2013.
Chart IV-1, China, Producer Prices for the Industrial Sector Month and 12 months ∆%
Source: National Bureau of Statistics of China http://www.stats.gov.cn/english/
Chart IV-2 of the National Bureau of Statistics of China provides monthly and 12-month inflation of the purchaser product indices for the industrial sector. Decreasing monthly inflation with four successive contractions from Oct 2011 to Jan 2012 and May-Aug 2012 pulled down the 12-month rate to minus 4.1 percent in Aug and Sep. Consecutive increases of 0.1 percent in Sep and Oct 2012 raised the 12-month rate to minus 3.3 percent in Oct 2012. The rate eased to minus 2.8 in Nov 2012 with decrease of 0.2 percent in Nov 2012 and minus 2.4 percent in Dec 2012 with monthly decrease of 0.1 percent. Increase of 0.3 percent in Jan 2013 and 0.2 in Feb 2013 pulled the 12-month rate to minus 1.9 percent. Decrease of prices of 0.1 percent in Mar 2013 brought down the 12-month rate to minus 2.0 percent. Declining prices of 0.6 percent in Apr and May 2013 and 0.5 percent in Jun 2013 pushed down the 12-month rate to minus 2.6 percent. The index fell 2.2 percent in the 12 months ending in Jul 2013 and 1.6 percent in the 12 months ending in Aug 2013. The index fell 1.6 percent in the 12 months ending in Sep 2013 and 1.6 percent in the 12 months ending in Oct 2013.
Chart IV-2, China, Purchaser Product Indices for Industrial Sector, Month and 12 months ∆%
Source: National Bureau of Statistics of China
http://www.stats.gov.cn/english/
China is highly conscious of food price inflation because of its high weight in the basket of consumption of the population. Consumer price inflation in China in Oct 2013 was 0.1 percent and 3.2 percent in 12 months, as shown in Table IV-8. Food prices decreased 0.4 percent in Oct 2013, increasing 6.5 percent in 12 months in adjustment to sharp increase in Sep 2013. Adjustment from the prior shock had occurred in May with decline of food prices by 1.6 percent and increase of 3.8 percent in 12 months and 3.8 percent in Jan-May 2013 relative to a year earlier. Another area of concern is housing inflation, which was 0.8 percent in Oct and increased 2.5 percent in 12 months. Prices of services increased 0.4 percent in Oct and gained 3.1 percent in 12 months.
Table IV-8, China, Consumer Price Index
| 2013 | Oct 2013 Month ∆% | Oct 2013 12-Month ∆% | Jan-Oct 2013 ∆%/ Jan-Oct 2012 |
| Consumer Prices | 0.1 | 3.2 | 2.6 |
| Urban | 0.1 | 3.2 | 2.5 |
| Rural | 0.0 | 3.3 | 2.8 |
| Food | -0.4 | 6.5 | 4.6 |
| Non-food | 0.3 | 1.6 | 1.6 |
| Consumer Goods | -0.1 | 3.2 | 2.5 |
| Services | 0.4 | 3.1 | 2.8 |
| Commodity Categories: | |||
| Food | NA | NA | NA |
| Tobacco, Liquor | 1.5 | 7.5 | 4.9 |
| Clothing | 0.1 | -0.9 | 0.5 |
| Household | 0.9 | 2.0 | 1.6 |
| Healthcare & Personal Articles | 0.0 | 0.5 | 0.3 |
| Transportation & Communication | 0.1 | 0.3 | 0.2 |
| Recreation, Education, Culture & Services | 0.2 | 3.1 | 4.2 |
| Residence | 0.8 | 2.5 | 1.5 |
Source: National Bureau of Statistics of China http://www.stats.gov.cn/english/
Month and 12-month rates of change of consumer prices are provided in Table IV-10. There are waves of consumer price inflation in China similar to those around the world (http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-world-inflation.html and earlier http://cmpassocregulationblog.blogspot.com/2013/10/world-inflation-waves-regional-economic.html). In the first wave, consumer prices increased at the annual equivalent rate of 8.3 percent in Jan-Mar 2011, driven by commodity price increases resulting from unconventional monetary policy of zero interest rates. In the second wave, risk aversion unwound carry trades with annual equivalent inflation falling to the rate of 2.0 percent in Apr-Jun 2011. In the third wave, inflation returned at 2.9 percent with renewed interest in commodity exposures in Jul-Nov 2011. In the fourth wave, inflation returned at a high 5.8 percent annual equivalent in Dec 2011 to Mar 2012. In the fifth wave, annual equivalent inflation was minus 3.9 percent in Apr to Jun 2012. In the sixth wave, annual equivalent inflation rose to 4.1 percent in Jul-Sep 2012. In the seventh wave, inflation was minus 1.2 percent annual equivalent in Oct 2012 and 0.0 percent in Oct-Nov 2012. In the eighth wave, annual equivalent inflation was 12.2 percent in Dec 2012-Feb 2013 primarily because of winter weather that caused increases in food prices. In the ninth wave, collapse of food prices resulted in annual equivalent inflation of minus 10.3 percent in Mar 2013. In the tenth wave, annual equivalent inflation returned at 2.4 percent in Apr 2013. In the eleventh wave, annual equivalent inflation was minus 3.5 percent in May-Jun 2013. In the twelfth wave, inflation rose at annual equivalent 4.6 percent in Jul-Oct 2013 with sharp increase of food prices in Sep 2013. Inflation volatility originating in unconventional monetary policy clouds investment and consumption decisions by business and households. There is local problem in China with food prices.
Table IV-9, China, Month and 12-Month Rates of Change of Consumer Price Index ∆%
| Month ∆% | 12-Month ∆% | |
| Oct 2013 | 0.1 | 3.2 |
| Sep | 0.8 | 3.1 |
| Aug | 0.5 | 2.6 |
| Jul | 0.1 | 2.7 |
| AE ∆% Jul-Oct | 4.6 | |
| Jun | 0.0 | 2.7 |
| May | -0.6 | 2.1 |
| AE ∆% May-Jun | -3.5 | |
| Apr | 0.2 | 2.4 |
| AE ∆% Apr | 2.4 | |
| Mar 2013 | -0.9 | 2.1 |
| AE ∆% Mar | -10.3 | |
| Feb | 1.1 | 3.2 |
| Jan | 1.0 | 2.0 |
| Dec 2012 | 0.8 | 2.5 |
| AE ∆% Dec-Feb | 12.2 | |
| Nov | 0.1 | 2.0 |
| Oct | -0.1 | 1.7 |
| AE ∆% Oct-Nov | 0.0 | |
| Sep | 0.3 | 1.9 |
| Aug | 0.6 | 2.0 |
| Jul | 0.1 | 1.8 |
| AE ∆% Jul-Sep | 4.1 | |
| Jun | -0.6 | 2.2 |
| May | -0.3 | 3.0 |
| Apr | -0.1 | 3.4 |
| AE ∆% Apr to Jun | -3.9 | |
| Mar | 0.2 | 3.6 |
| Feb | -0.1 | 3.2 |
| Jan | 1.5 | 4.5 |
| Dec 2011 | 0.3 | 4.1 |
| AE ∆% Dec to Mar | 5.8 | |
| Nov | -0.2 | 4.2 |
| Oct | 0.1 | 5.5 |
| Sep | 0.5 | 6.1 |
| Aug | 0.3 | 6.2 |
| Jul | 0.5 | 6.5 |
| AE ∆% Jul to Nov | 2.9 | |
| Jun | 0.3 | 6.4 |
| May | 0.1 | 5.5 |
| Apr | 0.1 | 5.3 |
| AE ∆% Apr to Jun | 2.0 | |
| Mar | -0.2 | 5.4 |
| Feb | 1.2 | 4.9 |
| Jan | 1.0 | 4.9 |
| AE ∆% Jan to Mar | 8.3 | |
| Dec 2010 | 0.5 | 4.6 |
AE: Annual Equivalent
Source: National Bureau of Statistics of China
http://www.stats.gov.cn/english/
Chart IV-3 of the National Bureau of Statistics of China provides monthly and 12-month rates of consumer price inflation. In contrast with producer prices, consumer prices had not moderated at the monthly marginal rates. Consumer prices fell 0.2 percent in Nov 2011 after increasing only 0.1 percent in Oct but increased 0.3 percent in Dec and a high 1.5 percent in Jan 2012, declining 0.1 percent in Feb, rising 0.2 percent in Mar and declining 0.1 percent in Apr, 0.3 percent in May and 0.6 percent in Jun 2012 but increasing 0.1 percent in Jul, 0.6 percent in Aug 2012 and 0.3 percent in Sep 2012. Consumer prices fell 0.1 percent in Oct 2012. The decline of 0.1 percent in Feb 2012 pulled down the 12-month rate to 3.2 percent, which bounced back to 3.6 percent in Mar with the monthly increase of 0.2 percent and fell to 2.2 percent in Jun with increasing pace of monthly decline from Apr to Jun 2012. Even with increase of 0.1 percent in Jul 2012, consumer price inflation in 12 months fell to 1.8 percent in Jul 2012 but bounced back to 2.0 percent with increase of 0.6 percent in Aug. In Sep, increase of 0.3 percent still maintained 12-month inflation at 1.9 percent. The decline of 0.1 percent in Oct 2012 pulled down the 12-month rate to 1.7 percent, which is the lowest in Chart IV-3. Increase of 0.1 percent in Nov 2012 pulled up the 12-month rate to 2.0 percent. Abnormal increase of 0.8 percent in Dec 2012 because of winter weather pulled up the 12-month rate to 2.5 percent. Even with increase of 1.0 percent in Jan 2013 12-month inflation fell to 2.0 percent. Inflation of 1.1 percent in Feb 2013 pulled the 12-month rate to 3.2 percent. Collapse of food prices with decline of consumer prices by 0.9 percent in Mar 2013 brought down the 12-month rate to 2.1 percent. Renewed inflation of 0.2 percent in Apr 2013 raised the 12-month rate to 2.4 percent. Decline of inflation by 0.6 percent in May reduced 12-month inflation to 2.1 percent. Inflation rose to 2.7 percent in the 12 months ending in Jun 2013 with unchanged monthly inflation. Consumer prices increased 0.1 percent in Jul 2013 and 2.7 percent in 12 months. In combination of increases of food prices and other prices, inflation returned with 0.5 percent in Aug 2013 and 2.6 percent in 12 months. Consumer prices increased 0.8 percent in Sept 2013 and 3.1 percent in 12 months with increase in food prices of 1.5 in the month of Sep 2013. Consumer prices increased 0.1 percent in Oct 2013 and 3.2 percent in 12 months.
Chart IV-3, China, Consumer Prices ∆% Month and 12 Months
Source: National Bureau of Statistics of China
http://www.stats.gov.cn/english/
The harmonized index of consumer prices of the euro area in Table IV-10 has similar inflation waves as in most countries (http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-world-inflation.html and earlier http://cmpassocregulationblog.blogspot.com/2013/10/world-inflation-waves-regional-economic.html). In the first wave, consumer prices in the euro area increased at the annual equivalent rate of 5.2 percent in Jan-Apr 2011. In the second wave, risk aversion caused unwinding of commodity carry trades with inflation decreasing at the annual equivalent rate of minus 2.4 percent in May-Jul 2011. In the third wave, improved risk appetite resulted in annual equivalent inflation in Aug-Nov 2011 at 4.3 percent. In the fourth wave, return of risk aversion caused decline of consumer prices at the annual equivalent rate of minus 3.0 percent in Dec 2011 to Jan 2012. In the fifth wave, improved attitudes toward risk aversion resulted in higher consumer price inflation at the high annual equivalent rate of 9.6 percent in Feb-Apr 2012. In the sixth wave, annual equivalent inflation fell to minus 2.8 percent in May-Jul 2012. In the seventh wave, increasing risk appetite caused new carry trade exposures that resulted in annual equivalent inflation of 6.8 percent in Aug-Sep 2012 and 5.3 percent in Aug-Oct 2012. In the eighth wave, annual-equivalent inflation was minus 2.4 percent in Nov 2012. In the ninth wave, annual equivalent inflation was 4.9 percent in Dec 2012. In the tenth wave, annual equivalent inflation was minus 11.4 percent in Jan 2013. In the eleventh wave, annual equivalent inflation was 10.0 percent in Feb-Mar 2013. In the twelfth wave, annual equivalent inflation was minus 1.2 percent in Apr 2013. In the thirteenth wave, annual equivalent inflation rose to 1.2 percent in May-Jun 2013. In the fourteenth wave, annual equivalent inflation was minus 5.8 percent in Jul 2013. In the fifteenth wave, annual equivalent inflation was 3.7 percent in Aug-Sep 2013. In the sixteenth wave, annual equivalent inflation was minus 1.2 percent in Oct 2013. Inflation volatility around the world is confusing the information required in investment and consumption decisions. The bottom part of Table IV-10 provides annual inflation in the euro area from 1999 to 2012. HICP inflation was 3.3 percent in 2008 mostly because of carry trades from interest rates falling to zero into commodity futures. Exposures in commodity futures were reversed in the flight to US government obligations with resulting inflation of 0.3 percent in 2009. Reallocations of portfolios of financial investors according to risk aversion caused high volatility of inflation in 2011 and 2013.
Table IV-10, Euro Area Harmonized Index of Consumer Prices Month and 12 Months ∆%
| Month ∆% | 12 Months ∆% | |
| Oct 2013 | -0.1 | 0.7 |
| AE ∆% Oct | -1.2 | |
| Sep | 0.5 | 1.1 |
| Aug | 0.1 | 1.3 |
| AE ∆% Aug- Sep | 3.7 | |
| Jul 2013 | -0.5 | 1.6 |
| AE ∆% Jul | -5.8 | |
| Jun | 0.1 | 1.6 |
| May | 0.1 | 1.4 |
| AE ∆% May-Jun | 1.2 | |
| Apr | -0.1 | 1.2 |
| AE ∆% Apr | -1.2 | |
| Mar | 1.2 | 1.7 |
| Feb | 0.4 | 1.9 |
| AE ∆% Feb-Mar | 10.0 | |
| Jan | -1.0 | 2.0 |
| AE ∆% Jan | -11.4 | |
| Dec 2012 | 0.4 | 2.2 |
| AE ∆% Dec | 4.9 | |
| Nov | -0.2 | 2.2 |
| AE ∆% Nov | -2.4 | |
| Oct | 0.2 | 2.5 |
| Sep | 0.7 | 2.6 |
| Aug | 0.4 | 2.6 |
| AE ∆% Aug-Oct | 5.3 | |
| Jul 2012 | -0.5 | 2.4 |
| Jun | -0.1 | 2.4 |
| May | -0.1 | 2.4 |
| AE ∆% May-Jul | -2.8 | |
| Apr | 0.5 | 2.6 |
| Mar | 1.3 | 2.7 |
| Feb | 0.5 | 2.7 |
| AE ∆% Feb-Apr | 9.6 | |
| Jan | -0.8 | 2.7 |
| Dec 2011 | 0.3 | 2.7 |
| AE ∆% Dec-Jan | -3.0 | |
| Nov | 0.1 | 3.0 |
| Oct | 0.4 | 3.0 |
| Sep | 0.7 | 3.0 |
| Aug | 0.2 | 2.6 |
| AE ∆% Aug-Nov | 4.3 | |
| Jul | -0.6 | 2.6 |
| Jun | 0.0 | 2.7 |
| May | 0.0 | 2.7 |
| AE ∆% May-Jul | -2.4 | |
| Apr | 0.6 | 2.8 |
| Mar | 1.4 | 2.7 |
| Feb | 0.4 | 2.4 |
| Jan | -0.7 | 2.3 |
| AE ∆% Jan-Apr | 5.2 | |
| Dec 2010 | 0.6 | 2.2 |
| Annual ∆% | ||
| 2012 | 2.5 | |
| 2011 | 2.7 | |
| 2010 | 1.6 | |
| 2009 | 0.3 | |
| 2008 | 3.3 | |
| 2007 | 2.1 | |
| 2006 | 2.2 | |
| 2005 | 2.2 | |
| 2004 | 2.2 | |
| 2003 | 2.1 | |
| 2002 | 2.3 | |
| 2001 | 2.4 | |
| 2000 | 2.2 | |
| 1999 | 1.2 |
AE: annual equivalent Source: EUROSTAT
http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/
http://epp.eurostat.ec.europa.eu/portal/page/portal/statistics/search_database
Table IV-11 provides weights and inflation of selected components of the HICP of the euro area. Inflation of all items excluding energy increased 1.0 percent in Oct 2013 relative to Oct 2012 and decreased 0.1 percent in Oct 2013 relative to Sep 2013. Prices of non-energy industrial goods increased 0.3 percent in Oct 2013 relative to a year earlier and increased 0.6 percent in Oct 2013. Inflation of services was 1.2 percent in Oct 2013 relative to a year earlier and decreased 0.3 percent in Oct 2013.
Table IV-11, Euro Area, HICP Inflation and Selected Components, ∆%
| Weight 2013 | Oct 2013/ Oct 2012 | 12-month Average Rate Oct 2013-2012/ Oct 2012-2011 | ∆% Oct 2013/Sep 2013 | |
| All Items | 1000.0 | 0.7 | 1.6 | -0.1 |
| All Items ex Energy | 890.4 | 1.0 | 1.6 | 0.0 |
| All Items ex Energy, Food, Alcohol & Tobacco | 696.7 | 0.8 | 1.2 | 0.0 |
| All Items ex Energy & Unprocessed Food | 816.9 | 1.0 | 1.4 | 0.1 |
| All Items ex Energy & Seasonal Food | 852.7 | 1.1 | 1.4 | 0.1 |
| All Items ex Tobacco | 975.8 | 0.6 | 1.5 | -0.1 |
| Energy | 109.6 | -1.7 | 1.6 | -1.2 |
| Food, Alcohol & Tobacco | 193.7 | 1.9 | 2.9 | -0.1 |
| Non-energy Industrial Goods | 273.6 | 0.3 | 0.7 | 0.6 |
| Services | 423.0 | 1.2 | 1.5 | -0.3 |
Source: EUROSTAT AE: annual equivalent Source: EUROSTAT
http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/
http://epp.eurostat.ec.europa.eu/portal/page/portal/statistics/search_database
The estimate of consumer price inflation in Germany in Table IV-12 is 1.2 percent in 12 months ending in Oct 2013, minus 0.2 percent NSA (not seasonally adjusted) in Oct 2013 relative to Sep 2013 and 0.0 percent CSA (calendar and seasonally adjusted) in Oct 2013 relative to Sep 2013. There are waves of consumer price inflation in Germany similar to those worldwide (http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-world-inflation.html and earlier http://cmpassocregulationblog.blogspot.com/2013/10/world-inflation-waves-regional-economic.html), as shown in Table IV-9. In the first wave, annual equivalent inflation was 3.0 percent in Feb-Apr 2011 NSA and 2.4 percent SA during risk appetite in carry trades from zero interest rates to commodity futures. In the second wave, annual equivalent consumer price inflation collapsed to 0.6 percent NSA and 3.0 percent SA in May-Jun 2011 because of risk aversion caused by European sovereign debt event. In the third wave, annual equivalent consumer price inflation was 1.7 percent NSA and 1.9 percent SA in Jul-Nov 2011 because of relaxed risk aversion. In the fourth wave, annual equivalent inflation was 0.6 percent NSA and 1.8 percent SA in Dec 2011 to Jan 2012. In the fifth wave, annual equivalent inflation rose to 4.5 percent NSA and 2.4 percent SA in Feb-Apr 2012 during another energy-commodity carry trade shock. In the sixth wave, annual equivalent inflation in May-Jun 2012 is minus 1.2 percent NSA and 0.6 percent SA. In the seventh wave, annual equivalent inflation NSA is 4.9 percent in Jul-Aug 2012 and 3.0 percent SA. In the eighth wave in Sep-Dec 2012, annual equivalent inflation is 1.5 percent NSA and 1.8 percent SA. In the ninth wave, annual equivalent inflation fell to minus 5.8 percent NSA in Jan 2013 and 0.0 percent SA. In the eleventh wave, annual equivalent inflation rose to 6.8 percent NSA in Feb-Mar 2013 and 1.2 percent CSA. In the twelfth wave, annual equivalent inflation in Apr fell to minus 5.8 percent NSA and 0.0 percent SA in reversal of carry trades into commodity futures. In the thirteenth wave, annual equivalent inflation returned at 4.1 percent in May-Jul 2013 NSA and 3.7 percent SA. In the fourteenth wave, annual equivalent inflation was nil NSA and 0.0 percent CSA in Aug-Sep 2013. In the fifteenth wave, annual equivalent inflation was minus 2.4 percent NSA in Oct 2013 and 0.0 percent CASA. Under unconventional monetary policy of zero interest rates and quantitative easing inflation becomes highly volatile during alternative shocks of risk aversion and risk appetite, preventing sound investment and consumption decisions.
Table IV-12, Germany, Consumer Price Index ∆%
| 12-Month ∆% | Month ∆% NSA | Month ∆% CSA | |
| Oct 2013 | 1.2 | -0.2 | 0.0 |
| AE ∆% Oct | -2.4 | 0.0 | |
| Sep | 1.4 | 0.0 | 0.1 |
| Aug | 1.5 | 0.0 | -0.1 |
| AE ∆% Aug-Sep | 0.0 | 0.0 | |
| Jul | 1.9 | 0.5 | 0.2 |
| Jun | 1.8 | 0.1 | 0.3 |
| May | 1.5 | 0.4 | 0.4 |
| AE ∆% May-Jul | 4.1 | 3.7 | |
| Apr | 1.2 | -0.5 | 0.0 |
| AE ∆% Apr | -5.8 | 0.0 | |
| Mar | 1.4 | 0.5 | 0.1 |
| Feb | 1.5 | 0.6 | 0.1 |
| AE ∆% Feb-Mar | 6.8 | 1.2 | |
| Jan | 1.7 | -0.5 | 0.0 |
| AE ∆% Jan | -5.8 | 0.0 | |
| Dec 2012 | 2.0 | 0.3 | 0.2 |
| Nov | 1.9 | 0.1 | 0.1 |
| Oct | 2.0 | 0.0 | 0.2 |
| Sep | 2.0 | 0.1 | 0.1 |
| AE ∆% Sep-Dec | 1.5 | 1.8 | |
| Aug | 2.2 | 0.4 | 0.3 |
| Jul | 1.9 | 0.4 | 0.2 |
| AE ∆% Jul-Aug | 4.9 | 3.0 | |
| Jun | 1.7 | -0.2 | 0.0 |
| May | 2.0 | 0.0 | 0.1 |
| AE ∆% May-Jun | -1.2 | 0.6 | |
| Apr | 2.0 | -0.2 | 0.2 |
| Mar | 2.2 | 0.6 | 0.2 |
| Feb | 2.2 | 0.7 | 0.2 |
| AE ∆% Feb-Apr | 4.5 | 2.4 | |
| Jan | 2.1 | -0.1 | 0.3 |
| Dec 2011 | 2.0 | 0.2 | 0.0 |
| AE ∆% Dec-Jan | 0.6 | 1.8 | |
| Nov | 2.4 | 0.2 | 0.2 |
| Oct | 2.3 | 0.0 | 0.1 |
| Sep | 2.4 | 0.2 | 0.3 |
| Aug | 2.1 | 0.1 | 0.1 |
| Jul | 2.1 | 0.2 | 0.1 |
| AE ∆% Jul-Nov | 1.7 | 1.9 | |
| Jun | 2.1 | 0.1 | 0.3 |
| May | 2.0 | 0.0 | 0.2 |
| AE ∆% May-Jun | 0.6 | 3.0 | |
| Apr | 1.9 | 0.0 | 0.2 |
| Mar | 2.0 | 0.6 | 0.2 |
| Feb | 1.9 | 0.6 | 0.2 |
| Jan | 1.7 | -0.2 | 0.2 |
| AE ∆% Feb-Apr | 3.0 | 2.4 | |
| Dec 2010 | 1.3 | 0.6 | 0.2 |
| Nov | 1.5 | 0.1 | 0.2 |
| Oct | 1.3 | 0.1 | 0.2 |
| Sep | 1.2 | -0.1 | 0.1 |
| Aug | 1.0 | 0.1 | 0.1 |
| Annual Average ∆% | |||
| 2012 | 2.0 | ||
| 2011 | 2.1 | ||
| 2010 | 1.1 | ||
| 2009 | 0.4 | ||
| 2008 | 2.6 | ||
| Dec 2009 | 0.8 | ||
| Dec 2008 | 1.1 | ||
| Dec 2007 | 3.2 | ||
| Dec 2006 | 1.4 | ||
| Dec 2005 | 1.4 | ||
| Dec 2004 | 2.2 | ||
| Dec 2003 | 1.1 | ||
| Dec 2002 | 1.1 | ||
| Dec 2001 | 1.6 |
AE: Annual Equivalent
Source: Statistisches Bundesamt Deutschland
https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html
Chart IV-4 of the Statistisches Bundesamt Deutschland, or federal statistical office of Germany, provides the unadjusted consumer price index of Germany from 2005 to 2013. There is evident acceleration in the form of sharper slope in the first months of 2011 and then a flattening in subsequent months with renewed strength in Dec 2011, decline in Jan 2012 and another upward spike from Feb to Apr 2012, new drop in May-Jun 2012 and increases in Jul and Aug 2012 relaxed in Sep-Nov 2012. Inflation returned in Dec 2012 and fell in Jan 2013, rebounding in Feb-Mar 2013. Inflation fell in Apr 2013 and rebounded in May 2013. Reversals of commodity exposures caused the decline in Apr 2013 followed by increases in May-Jul 2013. Inflation stabilized in Aug-Sep 2013 and fell in Oct 2013. If risk aversion declines, new carry trades from zero interest rates to commodity futures could again result in higher inflation.
Chart IV-4, Germany, Consumer Price Index, Unadjusted, 2010=100
Source: Statistisches Bundesamt Deutschland
https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html
Chart IV-4A provides the consumer price index NSA of the US from 2005 to 2013. The salient similarity is the hump in 2008 caused by commodity carry trades driven by the movement to zero interest rates. Inflation communicated worldwide through carry trade from zero interest rates to exposures in commodity futures, creating instability in financial and economic decisions.
Chart IV-4A, US, Consumer Price Index, All Items, NSA, 2005-2013
Source: Bureau of Labor Statistics http://www.bls.gov/cpi/data.htm
Source: Bureau of Labor Statistics http://www.bls.gov/cpi/data.htm
Chart IV-5, of the Statistisches Bundesamt Deutschland, or Federal Statistical Agency of Germany, provides the unadjusted consumer price index and trend of Germany from 2009 to 2013. Chart IV-5 captures inflation waves with alternation of periods of positive and negative slopes resulting from zero interest rates with shocks of risk appetite and risk aversion. For example, the negative slope of decline of inflation by 0.2 percent in Jun 2012 and 0.0 percent in May 2012 follows an upward slope of price increases in Feb-Apr 2012 after decline of inflation by 0.1 percent in Jan 2012. The final segment shows another positive slope caused by inflation of 0.4 percent in Jul 2012, which is followed by 0.4 percent in Aug 2012 and flattening segment, as inflation remains almost unchanged with 0.1 percent in Sep and 0.0 percent in Oct 2012, increasing 0.1 percent in Nov 2012 and increasing 0.3 percent in Dec 2012. Inflation fell 0.5 percent in Jan 2013 and jumped 0.6 percent in Feb 2013 and 0.5 percent in Mar 2013. The final declining segment indicates the decline of 0.5 percent in Apr 2013 followed by the increases in May-Jul 2013. Inflation was nil in Aug-Sep 2013 and fell in Oct 2013. The waves occur around an upward trend of prices, disproving the proposition of fear of deflation.
Chart IV-5, Germany, Consumer Price Index, Unadjusted and Trend, 2010=100
Source: Statistisches Bundesamt Deutschland
https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html
Table IV-13 provides the monthly and 12-month rate of inflation for segments of the consumer price index of Germany in Oct 2013. Inflation excluding energy changed 0.0 percent in Oct 2013 and rose 1.5 percent in 12 months. Excluding household energy inflation was minus 0.2 percent in Oct 2013 and rose 1.2 percent in 12 months. Food prices increased 0.2 percent in Oct 2013 and increased 4.2 percent in 12 months. There were differences in inflation of energy-related prices. Heating oil decreased 10.4 percent in 12 months and decreased 2.8 percent in Oct 2013. Motor fuels fell 3.0 percent in Oct and decreased 5.8 percent in 12 months.
Table IV-13, Germany, Consumer Price Index ∆%
| Oct 2013 | Weight | 12- Month ∆% | Month ∆% |
| Total | 1,000.00 | 1.2 | -0.2 |
| Excluding heating oil and motor fuels | 950.52 | 1.7 | 0.0 |
| Excluding household energy | 931.81 | 1.2 | -0.2 |
| Excluding Energy | 893.44 | 1.5 | 0.0 |
| Total Goods | 479.77 | 1.2 | 0.0 |
| Nondurable Consumer Goods | 307.89 | 1.7 | -0.4 |
| Energy | 106.56 | -0.5 | -1.3 |
| Services | 520.23 | 1.2 | -0.4 |
| Energy Components | |||
| Motor Fuels | 38.37 | -5.8 | -3.0 |
| Household Energy | 68.19 | 2.5 | -0.5 |
| Heating Oil | 11.11 | -10.4 | -2.8 |
| Food | 90.52 | 4.2 | 0.2 |
Source: Statistisches Bundesamt Deutschland
https://www.destatis.de/EN/PressServices/Press/pr/2013/11/PE13_375_611.html
Table IV-14 provides monthly and 12 months consumer price inflation in France. There are the same waves as in inflation worldwide (http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-world-inflation.html and earlier http://cmpassocregulationblog.blogspot.com/2013/10/world-inflation-waves-regional-economic.html). In the first wave, annual equivalent inflation in Jan-Apr 2011 was 4.3 percent driven by the carry trade from zero interest rates to commodity futures positions in an environment of risk appetite. In the second wave, risk aversion caused the reversal of carry trades into commodity futures, resulting in the fall of the annual equivalent inflation rate to minus 1.2 percent in May-Jul 2011. In the third wave, annual equivalent inflation rose to 3.0 percent in Aug-Nov 2011 with alternations of risk aversion and risk appetite. In the fourth wave, risk aversion originating in the European debt crisis caused annual equivalent inflation of 0.0 percent from Dec 2011 to Jan 2012. In the fifth wave, annual equivalent inflation increased to 5.3 percent in Feb-Apr 2012. In the sixth wave, annual equivalent inflation was minus 2.4 percent in May-Jul 2012 during another bout of risk aversion causing reversal of carry trades from zero interest rates to commodity price futures exposures. In the seventh wave, annual equivalent inflation jumped to 8.7 percent in Aug 2012, 3.0 percent in Aug-Sep 2012 and 2.8 percent in Aug-Oct 2012. In the eighth wave, annual equivalent inflation was minus 2.4 percent in Nov 2012 and minus 1.6 percent in Nov 2012 to Jan 2013. In the ninth wave, annual equivalent inflation was 6.8 percent in Feb-Mar 2013. In the tenth wave, annual equivalent inflation was minus 1.2 percent in Apr because of reversal of commodity carry trades. In the eleventh wave, annual equivalent inflation was 1.8 percent in May-Jun 2013. In the twelfth wave, annual equivalent inflation was minus 3.5 percent in Jul 2013. In the thirteenth wave, annual equivalent inflation returned at 6.2 percent in Aug 2013. In the fourteenth wave, annual equivalent inflation was minus 1.8 percent in Sep-Oct 2013.
Table IV-14, France, Consumer Price Index, Month and 12-Month ∆%
| Month ∆% | 12-Month ∆% | |
| Oct 2013 | -0.1 | 0.6 |
| Sep | -0.2 | 0.9 |
| AE ∆% Sep-Oct | -1.8 | |
| Aug | 0.5 | 0.9 |
| AE ∆% Aug | 6.2 | |
| Jul | -0.3 | 1.1 |
| AE ∆% Jul | -3.5 | |
| Jun | 0.2 | 0.9 |
| May | 0.1 | 0.8 |
| AE ∆% May-Jun | 1.8 | |
| Apr | -0.1 | 0.7 |
| AE ∆% Apr | -1.2 | |
| Mar | 0.8 | 1.0 |
| Feb | 0.3 | 1.0 |
| AE ∆% Feb-Mar | 6.8 | |
| Jan | -0.5 | 1.2 |
| Dec 2012 | 0.3 | 1.3 |
| Nov | -0.2 | 1.4 |
| AE ∆% Nov-Jan | -1.6 | |
| Oct | 0.2 | 1.9 |
| Sep | -0.2 | 1.9 |
| Aug | 0.7 | 2.1 |
| AE ∆% Aug-Oct | 2.8 | |
| Jul | -0.5 | 1.9 |
| Jun | 0.0 | 1.9 |
| May | -0.1 | 2.0 |
| AE ∆% May-Jul | -2.4 | |
| Apr | 0.1 | 2.1 |
| Mar | 0.8 | 2.3 |
| Feb | 0.4 | 2.3 |
| AE ∆% Feb-Apr | 5.3 | |
| Jan | -0.4 | 2.4 |
| Dec 2011 | 0.4 | 2.5 |
| AE ∆% Dec-Jan | 0.0 | |
| Nov | 0.3 | 2.5 |
| Oct | 0.3 | 2.4 |
| Sep | -0.1 | 2.2 |
| Aug | 0.5 | 2.2 |
| AE ∆% Aug-Nov | 3.0 | |
| Jul | -0.5 | 1.9 |
| Jun | 0.1 | 2.1 |
| May | 0.1 | 2.0 |
| AE ∆% May-Jul | -1.2 | |
| Apr | 0.3 | 2.1 |
| Mar | 0.8 | 2.0 |
| Feb | 0.5 | 1.6 |
| Jan | -0.2 | 1.8 |
| AE ∆% Jan-Apr | 4.3 | |
| Dec 2010 | 0.4 | 1.8 |
| Annual | ||
| 2012 | 2.0 | |
| 2011 | 2.1 | |
| 2010 | 1.5 | |
| 2009 | 0.1 | |
| 2008 | 2.8 | |
| 2007 | 1.5 | |
| 2006 | 1.6 | |
| 2005 | 1.8 | |
| 2004 | 2.1 | |
| 2003 | 2.1 | |
| 2002 | 1.9 | |
| 2001 | 1.7 | |
| 2000 | 1.7 | |
| 1999 | 0.5 | |
| 1998 | 0.7 | |
| 1997 | 1.2 | |
| 1996 | 2.0 | |
| 1995 | 1.8 | |
| 1994 | 1.6 | |
| 1993 | 2.1 | |
| 1992 | 2.4 | |
| 1991 | 3.2 |
AE: Annual Equivalent Metropolitan France
Source: Institut National de la Statistique et des Études Économiques
http://www.insee.fr/en/themes/info-rapide.asp?id=29&date=20131114
Chart IV-6 of Institut National de la Statistique et des Études Économiques provides the consumer price index in France since Jan 1998. There is the same jump and decline of inflation during the global recession from 2008 to 2009 caused by carry trades from zero interest rates into commodity exposures. The index also captures the waves of inflation around an upward trend.
Chart IV-6, France, Consumer Price Index, Jan 1998-Oct 2013, 1998=100
Source: Institut National de la Statistique et des Études Économiques
http://www.insee.fr/en/themes/info-rapide.asp?id=29&date=20131114
Table IV-15 provides consumer price inflation in France and of various items in Oct 2013 and in the 12 months ending in Oct 2013. Inflation of all items was minus 0.1 percent in Oct 2013 and 0.6 percent in 12 months. Energy prices decreased 1.7 percent in Oct 2013 and decreased 0.4 percent in 12 months. Transport and communications increased 0.9 percent in Oct 2013 and fell 0.7 percent in 12 months. Rentals and dwellings show higher 12-month increase of 1.7 percent. Services increased 0.1 percent in Oct 2013 and increased 1.4 percent in 12 months.
Table IV-15, France, Consumer Price Index, Month and 12-Month Percentage Changes of Index and Components, ∆%
| Oct 2013 | Weights | Month ∆% | 12-Month ∆% |
| All Items | 10000 | -0.1 | 0.6 |
| Food | 1658 | -0.1 | 0.2 |
| Manufactured Products | 2738 | 0.0 | -0.5 |
| Energy | 822 | -1.7 | -0.4 |
| Petroleum Products | 495 | -2.9 | -4.1 |
| Services | 4576 | 0.1 | 1.4 |
| Rentals, Dwellings | 748 | 0.7 | 1.7 |
| Transport and Communications | 506 | 0.9 | -0.7 |
Source: Institut National de la Statistique et des Études Économiques
http://www.insee.fr/en/themes/info-rapide.asp?id=29&date=20131114
Chart IV-7 of the Institut National de la Statistique et des Études Économiques (INSEE) of France shows headline and core consumer price inflation of France. Inflation rose during the commodity price shock of unconventional monetary policy. Risk aversion in late 2008 and beginning of 2009 caused collapse of valuation of commodity futures with resulting decline in inflation. The current downward trend of inflation originates in concentration of carry trades in equities and high-yield bonds with reversal of exposures in commodities.
Chart IV-7, France, Consumer Price Index (IPC) and Core Consumer Price Index (ISJ) 12 Months Rates of Change
Source: Institut National de la Statistique et des Études Économiques
http://www.insee.fr/en/themes/info-rapide.asp?id=29&date=20131114
The first wave of commodity price increases in the first four months of Jan-Apr 2011 also influenced the surge of consumer price inflation in Italy shown in Table IV-16. Annual equivalent inflation in the first four months of 2011 from Jan to Apr was 4.9 percent. The crisis of confidence or risk aversion resulted in reversal of carry trades on commodity positions. Consumer price inflation in Italy was subdued in the second wave in Jun and May 2011 at 0.1 percent for annual equivalent 1.2 percent. In the third wave in Jul-Sep 2011, annual equivalent inflation increased to 2.4 percent. In the fourth wave, annual equivalent inflation in Oct-Nov 2011 jumped again at 3.0 percent. Inflation returned in the fifth wave from Dec 2011 to Jan 2012 at annual equivalent 4.3 percent. In the sixth wave, annual equivalent inflation rose to 5.7 percent in Feb-Apr 2012. In the seventh wave, annual equivalent inflation was 1.2 percent in May-Jun 2012. In the eighth wave, annual equivalent inflation increased to 3.0 percent in Jul-Aug 2012. In the ninth wave, inflation collapsed to zero in Sep-Oct 2012 and was minus 0.8 percent in annual equivalent in Sep-Nov 2012. In the tenth wave, annual equivalent inflation in Dec 2012 to Aug 2013 was 2.0 percent. In the twelfth wave, annual equivalent inflation was minus 3.0 percent in Sep-Oct 2013 during reallocations of investment portfolios away from commodity futures. There are worldwide shocks to economies by intermittent waves of inflation originating in combination of zero interest rates and quantitative easing with alternation of risk appetite and risk aversion (http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-world-inflation.html and earlier http://cmpassocregulationblog.blogspot.com/2013/10/world-inflation-waves-regional-economic.html).
Table IV-16, Italy, Consumer Price Index
| Month | 12 Months | |
| Oct 2013 | -0.2 | 0.8 |
| Sep | -0.3 | 0.9 |
| AE ∆% Sep-Oct | -3.0 | |
| Aug | 0.4 | 1.2 |
| Jul | 0.1 | 1.2 |
| Jun | 0.3 | 1.2 |
| May | 0.0 | 1.1 |
| Apr | 0.0 | 1.1 |
| Mar | 0.2 | 1.6 |
| Feb | 0.1 | 1.9 |
| Jan | 0.2 | 2.2 |
| Dec 2012 | 0.2 | 2.3 |
| AE ∆% Dec 2012-Aug 2013 | 2.0 | |
| Nov | -0.2 | 2.5 |
| Oct | 0.0 | 2.6 |
| Sep | 0.0 | 3.2 |
| AE ∆% Sep-Nov | -0.8 | |
| Aug | 0.4 | 3.2 |
| Jul | 0.1 | 3.1 |
| AE ∆% Jul-Aug | 3.0 | |
| June | 0.2 | 3.3 |
| May | 0.0 | 3.2 |
| AE ∆% May-Jun | 1.2 | |
| Apr | 0.5 | 3.3 |
| Mar | 0.5 | 3.3 |
| Feb | 0.4 | 3.3 |
| AE ∆% Feb-Apr | 5.7 | |
| Jan | 0.3 | 3.2 |
| Dec 2011 | 0.4 | 3.3 |
| AE ∆% Dec-Jan | 4.3 | |
| Nov | -0.1 | 3.3 |
| Oct | 0.6 | 3.4 |
| AE ∆% Oct-Nov | 3.0 | |
| Sep | 0.0 | 3.0 |
| Aug | 0.3 | 2.8 |
| Jul | 0.3 | 2.7 |
| AE ∆% Jul-Sep | 2.4 | |
| Jun | 0.1 | 2.7 |
| May | 0.1 | 2.6 |
| AE ∆% May-Jun | 1.2 | |
| Apr | 0.5 | 2.6 |
| Mar | 0.4 | 2.5 |
| Feb | 0.3 | 2.4 |
| Jan | 0.4 | 2.1 |
| AE ∆% Jan-Apr | 4.9 | |
| Dec 2010 | 0.4 | 1.9 |
| Annual | ||
| 2012 | 3.0 | |
| 2011 | 2.8 | |
| 2010 | 1.5 | |
| 2009 | 0.8 | |
| 2008 | 3.3 | |
| 2007 | 1.8 | |
| 2006 | 2.1 |
Source: Istituto Nazionale di Statistica
http://www.istat.it/it/archivio/103289
Consumer price inflation in Italy by segments in the estimate by ISTAT for Oct 2013 is provided in Table IV-17. Total consumer price inflation in Oct 2013 was minus 0.2 percent and 0.8 percent in 12 months. Inflation of goods was minus 0.1 percent in Oct 2013 and 0.1 percent in 12 months. Prices of durable goods changed 0.0 percent in Oct and decreased 0.7 percent in 12 months, as typical in most countries. Prices of energy decreased 1.2 percent in Oct and decreased 3.5 percent in 12 months. Food prices decreased 0.2 percent in Oct and increased 1.5 percent in 12 months. Prices of services decreased 0.2 percent in Oct and rose 1.4 percent in 12 months. Transport prices, also influenced by commodity prices, decreased 0.4 percent in Oct and increased 2.8 percent in 12 months. Carry trades from zero interest rates to positions in commodity futures cause increases in commodity prices. Waves of inflation originate in periods when there is no risk aversion and commodity prices decline during periods of risk aversion and portfolio reallocations (http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-world-inflation.html and earlier http://cmpassocregulationblog.blogspot.com/2013/10/world-inflation-waves-regional-economic.html).
Table IV-17, Italy, Consumer Price Index and Segments, Month and 12-Month ∆%
| Oct 2013 | Weights | Month ∆% | 12-Month ∆% |
| General Index | 1,000,000 | -0.2 | 0.8 |
| I Goods | 559,402 | -0.1 | 0.1 |
| Food | 168,499 | -0.2 | 1.5 |
| Energy | 94,758 | -1.2 | -3.5 |
| Durable | 89,934 | 0.0 | -0.7 |
| Nondurable | 71,031 | 0.3 | 1.9 |
| II Services | 440,598 | -0.2 | 1.4 |
| Housing | 71,158 | 0.4 | 2.4 |
| Communications | 20,227 | -4.4 | -8.2 |
| Transport | 81,266 | -0.4 | 2.8 |
Source: Istituto Nazionale di Statistica
http://www.istat.it/it/archivio/103289
Chart IV-4 of the Istituto Nazionale di Statistica shows moderation in 12-month percentage changes of the consumer price index of Italy with marginal increase followed by decline to 2.5 percent in Nov 2012, 2.3 percent in Dec 2012, 2.2 percent in Jan 2013, 1.9 percent in Feb 2013 and 1.6 percent in Mar 2013. Consumer prices increased 1.1 percent in the 12 months ending in Apr-May 2013 and 1.2 percent in Jun-Jul 2013. In Aug 2013, consumer prices increased 1.2 percent in 12 months. Consumer prices increased 0.9 percent in the 12 months ending in Sep 2013 and 0.8 percent in the 12 months ending in Oct 2013.
Chart, IV-8, Italy, Consumer Price Index, 12-Month Percentage Changes
Source: Istituto Nazionale di Statistica
Inflation in the UK is somewhat higher than in many advanced economies, deserving more detailed analysis. Table IV-18 provides 12-month percentage changes of UK output prices for all manufactured products, excluding food, beverage and petroleum and excluding duty. The UK Office for National Statistics introduced rebasing for 2010=100 of the producer price index with important revisions (http://www.ons.gov.uk/ons/rel/ppi2/producer-price-index/producer-price-index-rebasing--2010-100-/index.html). The 12-month rates rose significantly in 2011 in all three categories, reaching 5.3 percent for all manufactured products in Sep 2011 but declining to 4.9 percent in Oct 2011, 4.6 percent in Nov 2011 and down to 1.3 percent in Jul 2012. Inflation of all manufactured products increased marginally to 2.3 percent in Aug 2012, 1.8 percent in Sep, 1.9 in Oct, 1.7 percent in Feb 2013, 1.5 percent in Mar 2013 and 1.0 percent in Apr 2013. Output prices increased 1.2 percent in the 12 months ending in May 2013, 1.7 percent in Jun 2013 and 1.8 percent in Jul 2013. Output price inflation was 1.5 percent in the 12 months ending in Aug 2013 and 1.2 percent in the 12 months ending in Sep 2013. Output price inflation was 0.8 percent in the 12 months ending in Oct 2013. Output price inflation is highly sensitive to commodity prices as shown by the increase by 6.7 percent in 2008 when oil prices rose over $140/barrel even in the midst of a global recession driven by the carry trade from zero interest rates to oil futures. The mirage episode of false deflation in 2001 and 2002 is also captured by output prices for the UK, which originated in decline of commodity prices (see Barsky and Killian 2004) but was used as an argument for unconventional monetary policy of zero interest rates and quantitative easing during the past decade.
Table IV-18, UK Output Prices 12 Months ∆% NSA
| All Manufactured Products | Excluding Food, Beverage, Tobacco and | All Excluding Duty | |
| Oct 2013 | 0.8 | 0.9 | 1.1 |
| Sep | 1.2 | 0.8 | 1.4 |
| Aug | 1.5 | 0.9 | 1.7 |
| Jul | 1.8 | 0.9 | 2.0 |
| Jun | 1.7 | 0.9 | 2.0 |
| May | 1.2 | 0.8 | 1.5 |
| Apr | 1.0 | 0.8 | 1.4 |
| Mar | 1.5 | 0.9 | 1.5 |
| Feb | 1.7 | 0.7 | 1.7 |
| Jan | 1.6 | 0.8 | 1.6 |
| Dec 2012 | 1.4 | 0.4 | 1.4 |
| Nov | 1.5 | 0.7 | 1.6 |
| Oct | 1.9 | 0.6 | 1.7 |
| Sep | 1.8 | 0.5 | 1.5 |
| Aug | 1.7 | 0.5 | 1.5 |
| Jul | 1.3 | 0.8 | 1.1 |
| Jun | 1.4 | 1.0 | 1.2 |
| May | 2.0 | 1.3 | 1.9 |
| Apr | 2.3 | 1.4 | 2.1 |
| Mar | 2.9 | 2.0 | 2.9 |
| Feb | 3.4 | 2.3 | 3.3 |
| Jan | 3.5 | 2.2 | 3.4 |
| Dec 2011 | 4.0 | 2.6 | 3.9 |
| Nov | 4.6 | 2.6 | 4.4 |
| Oct | 4.9 | 2.9 | 4.7 |
| Sep | 5.3 | 3.1 | 5.2 |
| Aug | 5.2 | 3.2 | 5.0 |
| Jul | 5.2 | 2.8 | 5.0 |
| Jun | 5.0 | 2.8 | 4.9 |
| May | 4.8 | 3.0 | 4.6 |
| Apr | 4.9 | 3.0 | 4.8 |
| Mar | 4.7 | 2.5 | 4.4 |
| Feb | 4.4 | 2.5 | 4.2 |
| Jan | 4.0 | 2.4 | 3.7 |
| Dec 2010 | 3.4 | 2.0 | 2.9 |
| Year ∆% | |||
| 2012 | 2.1 | 1.1 | 1.9 |
| 2011 | 4.8 | 2.8 | 4.6 |
| 2010 | 2.7 | 1.5 | 2.1 |
| 2009 | 0.5 | 1.4 | -0.1 |
| 2008 | 6.7 | 3.6 | 6.8 |
| 2007 | 2.3 | 1.4 | 2.0 |
| 2006 | 2.1 | 1.5 | 2.0 |
| 2005 | 1.9 | 0.9 | 1.8 |
| 2004 | 1.1 | -0.1 | 0.7 |
| 2003 | 0.6 | 0.0 | 0.6 |
| 2002 | -0.1 | -0.3 | -0.1 |
| 2001 | -0.2 | -0.7 | -0.3 |
| 2000 | 1.4 | -0.4 | 0.8 |
| 1999 | 0.5 | -1.1 | -0.2 |
| 1998 | 0.1 | -0.9 | -1.0 |
| 1997 | 1.0 | 0.3 | 0.2 |
Source: UK Office for National Statistics
http://www.ons.gov.uk/ons/rel/ppi2/producer-price-index/october-2013/index.html
Monthly and annual equivalent rates of change of output prices are shown in Table IV-19. There are waves of inflation similar to those in other countries (http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-world-inflation.html). In the first wave, annual equivalent inflation was 10.0 percent in Jan-Apr 2011 with relaxed risk aversion in commodity markets. In the second wave, intermittent risk aversion resulted in annual equivalent inflation of 1.6 percent in May-Oct 2011. In the third wave, alternation of risk aversion resulted in annual equivalent inflation of 1.2 percent in Nov 2011 to Jan 2012. In the fourth wave, the energy commodity shock processed through carry trades caused the jump of annual equivalent inflation to 5.3 percent in Feb-Apr 2012. A fifth wave occurred in May-Jun 2012 with decline of output inflation at 3.5 percent annual equivalent in an environment of risk aversion that caused decline of commodity prices. A sixth wave under commodity shocks induced by carry trades from zero interest rates resulted in annual equivalent inflation of 3.7 percent in Jul-Sep 2012 and 4.1 percent in Jul-Oct 2012. In the seventh wave, annual equivalent inflation in Nov-Dec 2012 fell to minus 2.4 percent. In the eighth wave, annual equivalent inflation returned at 4.9 percent in Jan-Mar 2013. In the ninth wave, risk aversion returned with annual equivalent inflation of minus 0.6 percent in Apr-May 2013. In the tenth wave, annual equivalent inflation was 2.0 percent in Jun-Aug 2013. In the eleventh wave, annual equivalent inflation was 4.9 percent in Sep-Oct 2013.
Table IV-19, UK Output Prices Month ∆% NSA
| All Manufactured Products | Excluding Food, Beverage and | All Excluding Duty | |
| Oct 2013 | 0.8 | 0.1 | -0.2 |
| Sep | 0.0 | 0.0 | 0.0 |
| ∆% AE Sep-Oct | 4.9 | 0.6 | -1.2 |
| Aug | 0.1 | 0.0 | 0.1 |
| Jul | 0.3 | 0.1 | 0.2 |
| Jun | 0.1 | 0.0 | 0.1 |
| ∆% AE Jun-Aug | 2.0 | 0.4 | 1.6 |
| May | 0.0 | 0.0 | 0.0 |
| Apr | -0.1 | 0.1 | 0.0 |
| ∆% AE Apr-May | -0.6 | 0.6 | 0.0 |
| Mar | 0.3 | 0.3 | 0.3 |
| Feb | 0.5 | 0.2 | 0.5 |
| Jan | 0.4 | 0.3 | 0.4 |
| ∆% AE Jan-Mar | 4.9 | 3.2 | 4.9 |
| Dec 2012 | -0.2 | -0.2 | -0.2 |
| Nov | -0.2 | 0.0 | 0.0 |
| ∆% AE Nov-Dec | -2.4 | -1.2 | -1.2 |
| Oct | 0.1 | 0.0 | 0.1 |
| Sep | 0.3 | 0.1 | 0.3 |
| Aug | 0.4 | 0.0 | 0.4 |
| Jul | 0.2 | 0.1 | 0.2 |
| ∆% AE Jul-Oct | 4.1 | 0.6 | 4.1 |
| Jun | -0.4 | -0.1 | -0.4 |
| May | -0.2 | 0.0 | -0.1 |
| ∆% AE May-Jun | -3.5 | -0.6 | -3.0 |
| Apr | 0.4 | 0.2 | 0.1 |
| Mar | 0.5 | 0.1 | 0.5 |
| Feb | 0.4 | 0.3 | 0.4 |
| ∆% AE Feb-Apr | 5.3 | 2.4 | 4.1 |
| Jan | 0.2 | -0.1 | 0.2 |
| Dec 2011 | -0.1 | 0.1 | 0.0 |
| Nov | 0.2 | -0.1 | 0.1 |
| ∆% AE Nov-Jan | 1.2 | 0.4 | 1.2 |
| Oct | 0.0 | -0.1 | -0.1 |
| Sep | 0.2 | 0.1 | 0.3 |
| Aug | 0.0 | 0.3 | 0.0 |
| Jul | 0.3 | 0.3 | 0.3 |
| Jun | 0.2 | 0.2 | 0.3 |
| May | 0.1 | 0.1 | 0.1 |
| ∆% AE May-Oct | 1.6 | 1.8 | 1.8 |
| Apr | 1.0 | 0.8 | 0.9 |
| Mar | 1.0 | 0.4 | 0.9 |
| Feb | 0.5 | 0.2 | 0.5 |
| Jan | 0.7 | 0.3 | 0.7 |
| Jan-Apr | 10.0 | 5.2 | 9.4 |
| Dec 2010 | 0.5 | 0.1 | 0.4 |
Source: UK Office for National Statistics
http://www.ons.gov.uk/ons/rel/ppi2/producer-price-index/october-2013/index.html
Input prices in the UK have been more dynamic than output prices until the current event of risk aversion, as shown by Table IV-20, but with sharp oscillations because of the commodity and raw material content. The UK Office for National Statistics introduced rebasing for 2010=100 of the producer price index with important revisions (http://www.ons.gov.uk/ons/rel/ppi2/producer-price-index/producer-price-index-rebasing--2010-100-/index.html). The 12-month rates of increase of input prices, even excluding food, tobacco, beverages and petroleum, are very high, reaching 16.9 percent in Sep 2011 for materials and fuels purchased and 10.6 percent excluding food, beverages and petroleum. Inflation in 12 months of materials and fuels purchased moderated to 5.7 percent in Mar 2012 and 3.2 percent excluding food, tobacco, beverages and petroleum with the rates falling further in Apr 2012 to 1.5 percent for materials and fuels purchased and 1.1 percent excluding food, tobacco, beverages and petroleum. Input-price inflation collapsed in the 12 months ending in Jul 2012 to minus 2.5 percent for materials and fuels purchased and minus 2.5 percent excluding food, beverages and tobacco. Inflation returned at 0.7 percent in the 12 months ending in Aug 2012 but minus 2.6 percent excluding food, tobacco, beverages and petroleum. Inflation of input prices in Sep 2012 was minus 1.2 percent and minus 3.1 percent excluding food, beverages and petroleum. In Nov 2012, inflation of input prices of all manufacturing and materials purchased was minus 0.2 percent in 12 months and minus 1.6 percent in 12 months excluding food, tobacco, beverages and petroleum. Inflation of materials and fuels purchased in 12 months was 0.4 percent in Dec 2012 and minus 1.2 percent excluding tobacco, beverages and petroleum. Inflation of inputs returned with 1.6 percent in the 12 months ending in Jan 2013 and minus 0.2 percent excluding various items, increasing to 2.0 percent in Feb 2013 and 1.0 percent excluding various items. In Mar 2013, inflation of all manufacturing materials and fuels increased 0.9 percent in 12 months and 1.6 percent excluding various items. Prices of all manufacturing materials and fuels increased 0.3 percent in the 12 months ending in Apr 2013 and increased 0.9 percent excluding food and other items. Prices of all manufacturing increased 1.4 percent in the 12 months ending in May 2013 and 0.4 percent excluding various items. In Jul 2013, prices of manufactured products increased 4.7 percent in 12 months and 2.0 percent excluding food, tobacco, beverages and petroleum. In Aug 2013, prices of manufactured products increased 1.8 percent in 12 months and 1.4 percent excluding items. Inflation of input prices in the 12 months ending in Sep 2013 was 0.9 percent and 0.3 percent excluding items. Inflation collapsed in Oct 2013, with minus 0.3 percent for all manufacturing materials and fuels and minus 0.4 percent excluding various items. There is comparable experience with 22.1 percent inflation of materials and fuels purchased in 2008 and 16.9 percent excluding food, beverages and petroleum followed in 2009 by decline of 5.7 percent for materials and fuels purchased and increase of 1.6 percent for the index excluding items. UK input and output inflation is sensitive to commodity price increases driven by carry trades from zero interest rates. The mirage of false deflation is also observed in input prices in 1997-9 and then again from 2001 to 2003.
Table IV-20, UK, Input Prices 12-Month ∆% NSA
| All Manufacturing Materials and Fuels Purchased | Excluding Food, Tobacco, Beverages and Petroleum | |
| Oct 2013 | -0.3 | -0.4 |
| Sep | 0.9 | 0.3 |
| Aug | 1.8 | 1.4 |
| Jul | 4.7 | 2.0 |
| Jun | 3.0 | 0.0 |
| May | 1.4 | 0.4 |
| Apr | 0.3 | 0.9 |
| Mar | 0.9 | 1.6 |
| Feb | 2.0 | 1.0 |
| Jan | 1.6 | -0.2 |
| Dec 2012 | 0.4 | -1.2 |
| Nov | -0.2 | -1.6 |
| Oct | -0.2 | -2.1 |
| Sep | -1.2 | -3.1 |
| Aug | 0.7 | -2.6 |
| Jul | -2.5 | -2.5 |
| Jun | -1.7 | -1.0 |
| May | 0.3 | -0.5 |
| Apr | 1.5 | 1.1 |
| Mar | 5.7 | 3.2 |
| Feb | 7.5 | 4.4 |
| Jan | 6.4 | 3.9 |
| Dec 2011 | 8.6 | 5.0 |
| Nov | 12.8 | 7.6 |
| Oct | 13.4 | 8.1 |
| Sep | 16.9 | 10.6 |
| Aug | 15.6 | 10.9 |
| Jul | 17.6 | 10.7 |
| Jun | 16.4 | 10.3 |
| May | 15.3 | 9.3 |
| Apr | 16.9 | 10.2 |
| Mar | 13.5 | 7.8 |
| Feb | 13.9 | 9.2 |
| Jan | 13.2 | 9.6 |
| Dec 2010 | 12.1 | 8.9 |
| Year ∆% | ||
| 2012 | 1.3 | 1.2 |
| 2011 | 14.5 | 11.3 |
| 2010 | 8.0 | 5.7 |
| 2009 | -5.7 | 1.6 |
| 2008 | 22.1 | 16.9 |
| 2007 | 2.9 | 2.4 |
| 2006 | 9.8 | 7.2 |
| 2005 | 10.9 | 6.9 |
| 2004 | 3.4 | 1.6 |
| 2003 | 1.1 | -0.6 |
| 2002 | -4.5 | -4.8 |
| 2001 | -1.1 | -1.2 |
| 2000 | 7.3 | 3.7 |
| 1999 | -1.3 | -3.6 |
| 1998 | -8.9 | -4.6 |
| 1997 | -8.3 | -6.3 |
Source: UK Office for National Statistics
http://www.ons.gov.uk/ons/rel/ppi2/producer-price-index/october-2013/index.html
Table IV-18 provides monthly percentage changes of UK input prices for materials and fuels purchased and excluding food, tobacco, beverages and petroleum. There are strong waves of inflation of input prices in the UK similar to those worldwide (http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-world-inflation.html). In the first wave, input prices rose at the high annual equivalent rate of 30.6 percent in Jan-Apr 2011, driven by carry trades from unconventional monetary policy into commodity exposures. Inflation of input prices was at 31.8 percent annual equivalent in Oct-Dec 2010. In the second wave, alternating risk aversion caused annual equivalent inflation of minus 3.1 percent in May-Oct 2011. In the third wave, renewed risk aversion resulted in annual equivalent inflation of 0.0 percent in Nov-Dec 2011. In the fourth wave, annual equivalent inflation of input prices in the UK surged at 14.9 percent in Jan-Mar 2012 under relaxed risk aversion. In the fifth wave, annual equivalent inflation was minus 16.1 percent in Apr-Jul 2012 because of collapse of commodity prices during increasing risk aversion. In the sixth wave, annual equivalent inflation of materials and fuels purchased jumped to 23.9 percent in Aug 2012. In the seventh wave, annual equivalent inflation moderated to 3.0 percent in Sep-Dec 2012. In the eighth wave, annual equivalent inflation in Jan-Feb 2013 jumped to 24.6 percent. In the eighth wave, annual equivalent inflation of materials and fuels purchased was minus 9.5 percent in Mar-Jun 2013. In the ninth wave, annual equivalent inflation returned at 18.2 percent in annual equivalent in Jul 2013. In the tenth wave, annual equivalent inflation was minus 9.9 percent in Aug-Oct 2013.
Table IV-21, UK Input Prices Month ∆%
| All Manufacturing Materials and Fuels Purchased NSA | Excluding Food, Tobacco, Beverages and Petroleum SA | |
| Oct 2013 | -0.6 | -0.3 |
| Sep | -1.0 | -0.8 |
| Aug | -1.0 | -0.5 |
| ∆% Aug-Oct | -9.9 | -6.2 |
| Jul | 1.4 | 1.1 |
| ∆% Jul | 18.2 | 14.0 |
| Jun | -0.3 | -0.3 |
| May | -1.3 | -0.9 |
| Apr | -1.9 | -0.9 |
| Mar | 0.2 | 0.1 |
| ∆% Mar-Jun | -9.5 | -5.8 |
| Feb | 2.5 | 1.4 |
| Jan | 1.2 | 0.6 |
| ∆% Jan-Feb | 24.6 | 12.7 |
| Dec 2012 | 0.3 | -0.2 |
| Nov | 0.3 | 0.4 |
| Oct | 0.5 | 0.4 |
| Sep | -0.1 | 0.2 |
| ∆% Sep-Dec | 3.0 | 2.4 |
| Aug | 1.8 | 0.0 |
| ∆% Aug | 23.9 | 0.0 |
| Jul | -0.3 | -0.7 |
| Jun | -1.8 | 0.2 |
| May | -2.4 | -0.6 |
| Apr | -1.3 | -0.1 |
| ∆% Apr-Jul | -16.1 | -3.5 |
| Mar | 1.3 | -0.5 |
| Feb | 2.2 | 0.4 |
| Jan | 0.0 | -0.4 |
| ∆% AE Jan-Mar | 14.9 | -2.0 |
| Dec 2011 | -0.3 | -0.1 |
| Nov | 0.3 | -0.7 |
| ∆% AE Nov-Dec | 0.0 | -3.2 |
| Oct | -0.5 | -0.6 |
| Sep | 1.8 | 0.5 |
| Aug | -1.5 | 0.3 |
| Jul | 0.5 | 0.7 |
| Jun | 0.2 | 0.8 |
| May | -1.1 | 0.6 |
| ∆% AE May-Oct | -1.3 | 4.7 |
| Apr | 2.8 | 2.1 |
| Mar | 3.0 | 0.6 |
| Feb | 1.1 | 0.1 |
| Jan | 2.1 | 0.7 |
| ∆% AE Jan-Apr | 30.6 | 11.0 |
| Dec 2010 | 3.5 | 1.7 |
| Nov | 0.9 | 0.4 |
| Oct | 2.5 | 1.7 |
| ∆% AE Oct-Dec | 31.8 | 16.3 |
Source: UK Office for National Statistics
http://www.ons.gov.uk/ons/rel/ppi2/producer-price-index/october-2013/index.html
The UK Office for National Statistics also provides contributions in percentage points to the monthly and 12-month rates of inflation of manufactured products, shown in Table IV-22. There are high contributions to 12-month percentage changes of 0.50 percentage points by food products, 0.19 percentage points by tobacco and alcohol, 0.10 percentage points by computer, electrical and optical and 0.18 percentage points by other manufactured products. There are diversified sources of contributions to 12 months output price inflation such as 0.04 percentage points by clothing, textile and leather and 0.12 percentage points by transport equipment. Petroleum deducted 0.38 percentage points. In general, contributions by products rich in commodities are the drivers of price changes. There were diversified contributions in percentage points to monthly inflation: 0.31 percentage points deducted by petroleum and 0.01 percentage points by paper and printing.
Table IV-22, UK, Contributions to Month and 12-Month Change in Prices of All Manufactured Products, Percentage Points, NSA
| Oct 2013 | 12 Months | 12 Months ∆% | Month % Points | Month ∆% |
| Total % | 0.8 | -0.3 | ||
| Food Products | 0.50 | 3.5 | -0.06 | -0.3 |
| Tobacco & Alcohol | 0.19 | 2.3 | 0.06 | 0.5 |
| Clothing, Textile & Leather | 0.04 | 0.5 | 0.00 | 0.0 |
| Paper and Printing | 0.02 | 0.5 | -0.01 | -0.2 |
| Petroleum | -0.38 | -4.4 | -0.31 | -2.9 |
| Chemicals & Pharmaceutical | -0.07 | -1.0 | 0.02 | 0.2 |
| Metal, Machinery & Equipment | 0.09 | 1.3 | 0.01 | 0.1 |
| Computer, Electrical & Optical | 0.10 | 0.9 | -0.02 | -0.1 |
| Transport Equipment | 0.12 | 1.1 | 0.01 | 0.1 |
| Other Manufactured Products | 0.18 | 1.2 | 0.00 | 0.0 |
Source: UK Office for National Statistics
http://www.ons.gov.uk/ons/rel/ppi2/producer-price-index/october-2013/index.html
The UK Office for National Statistics also provides contributions in percentage points to the monthly and 12-month rates of inflation of input prices in Oct 2013, shown in Table IV-23. Crude oil is a large factor with deduction of 0.48 percentage points to the 12-month rate and deduction of 0.86 percentage points to the monthly rate in Oct 2013. Price changes also transfer to the domestic economy through the prices of imported inputs: imported metals deducted 0.49 percentage points from the 12-month rate and 0.12 percentage points from the Oct rate. Domestic food materials deducted 0.26 percentage points from the 12-month rate and deducted 0.04 percentage points from the Oct rate. Exposures and reversals of commodity exposures in carry trades during risk aversion are a major source of financial instability.
Table IV-23, UK, Contributions to Month and 12-Month Change in Prices of Inputs, Percentage Points NSA
| Oct 2013 | 12 Months | 12 Months ∆% | Month % Points | Month ∆% |
| Total | -0.3 | -0.6 | ||
| Fuel | 0.47 | 4.7 | 0.27 | 2.5 |
| Crude Oil | -0.48 | -2.1 | -0.86 | -3.6 |
| Domestic Food Materials | -0.26 | -2.0 | -0.04 | -0.3 |
| Imported Food Materials | 0.49 | 7.8 | 0.16 | 2.4 |
| Other Domestic Produced Materials | 0.04 | 1.4 | 0.00 | 0.1 |
| Imported Metals | -0.49 | -7.1 | -0.12 | -1.8 |
| Imported Chemicals | 0.22 | 1.8 | 0.04 | 0.3 |
| Imported Parts and Equipment | -0.26 | -1.6 | 0.00 | 0.0 |
| Other Imported Materials | 0.02 | 0.3 | -0.01 | -0.1 |
Source: UK Office for National Statistics
http://www.ons.gov.uk/ons/rel/ppi2/producer-price-index/october-2013/index.html
Consumer price inflation in the UK is shown in Table IV-24. The CPI index increased 0.4 percent in Sep 2013 and increased 2.7 percent in 12 months. The same inflation waves (http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-world-inflation.html) are present in UK CPI inflation. In the first wave in Jan-Apr 2011, annual equivalent inflation was at a high 6.5 percent. In the second wave in May-Jul 2011, annual equivalent inflation fell to only 0.4 percent. In the third wave in Aug-Nov 2011, annual equivalent inflation returned at 4.6 percent. In the fourth wave in Dec 2011 to Jan 2012, annual equivalent inflation was minus 0.6 percent because of decline of 0.5 percent in Jan 2012. In the fifth wave, annual equivalent inflation increased to 6.2 percent in Feb-Apr 2012. In the seventh wave, annual equivalent inflation was minus 3.0 percent in May-Jun 2012. In the eighth wave, annual equivalent inflation in Jul-Dec 2012 was 4.5 percent and 6.2 percent in Oct 2012 with the rate in Oct caused mostly by increases in university tuition payments. In the ninth wave, annual equivalent inflation was minus 5.8 percent in Jan 2013. In the tenth wave, annual equivalent inflation jumped to 4.3 percent in Feb-May 2013. In the eleventh wave, annual equivalent inflation was minus 1.2 percent in Jun-Jul 2013. In the twelfth wave, annual equivalent inflation was 3.7 percent in Aug-Oct 2013.
Table IV-24, UK, Consumer Price Index All Items, Month and 12-Month ∆%
| Month ∆% | 12 Months ∆% | |
| Oct 2013 | 0.1 | 2.2 |
| Sep | 0.4 | 2.7 |
| Aug | 0.4 | 2.7 |
| AE ∆% Aug-Oct | 3.7 | |
| Jul | 0.0 | 2.8 |
| Jun | -0.2 | 2.9 |
| AE ∆% Jun-Jul | -1.2 | |
| May | 0.2 | 2.7 |
| Apr | 0.2 | 2.4 |
| Mar | 0.3 | 2.8 |
| Feb | 0.7 | 2.8 |
| AE ∆% Feb-May | 4.3 | |
| Jan 2013 | -0.5 | 2.7 |
| AE ∆% Jan | -5.8 | |
| Dec 2012 | 0.5 | 2.7 |
| Nov | 0.2 | 2.7 |
| Oct | 0.5 | 2.7 |
| Sep | 0.4 | 2.2 |
| Aug | 0.5 | 2.5 |
| Jul | 0.1 | 2.6 |
| AE ∆% Jul-Dec | 4.5 | |
| Jun | -0.4 | 2.4 |
| May | -0.1 | 2.8 |
| AE ∆% May-Jun | -3.0 | |
| Apr | 0.6 | 3.0 |
| Mar | 0.3 | 3.5 |
| Feb | 0.6 | 3.4 |
| AE ∆% Feb-Apr | 6.2 | |
| Jan | -0.5 | 3.6 |
| Dec 2011 | 0.4 | 4.2 |
| AE ∆% Dec-Jan | -0.6 | |
| Nov | 0.2 | 4.8 |
| Oct | 0.1 | 5.0 |
| Sep | 0.6 | 5.2 |
| Aug | 0.6 | 4.5 |
| AE ∆% Aug-Nov | 4.6 | |
| Jul | 0.0 | 4.4 |
| Jun | -0.1 | 4.2 |
| May | 0.2 | 4.5 |
| May-Jul | 0.4 | |
| Apr | 1.0 | 4.5 |
| Mar | 0.3 | 4.0 |
| Feb | 0.7 | 4.4 |
| Jan | 0.1 | 4.0 |
| AE ∆% Jan-Apr | 6.5 | |
| Dec 2010 | 1.0 | 3.7 |
| Nov | 0.4 | 3.3 |
| Oct | 0.3 | 3.2 |
| Sep | 0.0 | 3.1 |
| Aug | 0.5 | 3.1 |
| Jul | -0.2 | 3.1 |
| Jun | 0.1 | 3.2 |
| May | 0.2 | 3.4 |
| Apr | 0.6 | 3.7 |
| Mar | 0.6 | 3.4 |
| Feb | 0.4 | 3.0 |
| Jan | -0.2 | 3.5 |
Source: UK Office for National Statistics
http://www.ons.gov.uk/ons/rel/cpi/consumer-price-indices/october-2013/index.html
Inflation has been unusually high in the UK since 2006, as shown in Table IV-22. There were no rates of inflation close to 2.0 percent in the period from 1997 to 2004. Inflation has exceeded 2 percent since 2005, reaching 3.6 percent in 2008, 3.3 percent in 2010, 4.5 percent in 2011 and 2.8 percent in 2012.
Table IV-25, UK, Consumer Price Index, Annual ∆%
| Annual | |
| change | |
| 2005=100 | |
| 1997 | 1.8 |
| 1998 | 1.6 |
| 1999 | 1.3 |
| 2000 | 0.8 |
| 2001 | 1.2 |
| 2002 | 1.3 |
| 2003 | 1.4 |
| 2004 | 1.3 |
| 2005 | 2.1 |
| 2006 | 2.3 |
| 2007 | 2.3 |
| 2008 | 3.6 |
| 2009 | 2.2 |
| 2010 | 3.3 |
| 2011 | 4.5 |
| 2012 | 2.8 |
Source: UK Office for National Statistics
http://www.ons.gov.uk/ons/rel/cpi/consumer-price-indices/october-2013/index.html
Table IV-26 provides the analysis of inflation in Oct 2013 by the UK Office for National Statistics. In the rate of 0.1 percent for Oct, clothing and footwear added 0.07 percentage points, furniture and household goods deducted 0.02 percentage points and transport deducted 0.22 percentage points. Contributions of percentage points to the 12-month rate of consumer price inflation of 2.2 percent are in the second column in Table IV-26. Food and nonalcoholic beverages added 0.42 percentage points, alcohol and tobacco added 0.24 percentage points, housing and household goods added 0.56 percentage points and transport deducted 0.04 percentage points.
Table IV-26, UK, Consumer Price Index Month and Twelve-month Percentage Point Contributions to Change by Components
| Oct 2013 | Percentage Point Contribution 12 M Oct | Percentage Point Contribution Oct |
| CPI All Items ∆% | 2.2 | 0.1 |
| Food & Non-Alcoholic Beverages | 0.42 | 0.02 |
| Alcohol & Tobacco | 0.24 | 0.01 |
| Clothing & Footwear | 0.10 | 0.07 |
| Housing & Household Services | 0.56 | 0.00 |
| Furniture & Household Goods | 0.06 | -0.02 |
| Health | 0.06 | 0.00 |
| Transport | -0.04 | -0.22 |
| Communication | 0.09 | 0.01 |
| Recreation & Culture | 0.10 | 0.02 |
| Education | 0.22 | 0.17 |
| Restaurants & Hotels | 0.33 | 0.02 |
| Miscellaneous Goods & Services | 0.06 | -0.02 |
| Rounding Effects | 0.00 | 0.04 |
Note: there are rounding effects in contributions
Source: UK Office for National Statistics
http://www.ons.gov.uk/ons/rel/cpi/consumer-price-indices/october-2013/index.html
© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013
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