Federal Open Market Committee Leaves Fed Funds Rate at 0 to ¼ Percent Per
Year Probably Until 2023, Stable US Dollar With Revaluing Yuan, Growth of US
Manufacturing at 1.0 Percent in Aug 2020, US Manufacturing 7.0 Lower Than A
Year Earlier In the Global Recession, with Output in the US Reaching a High
in Feb 2020 (https://www.nber.org/cycles.html), in the Lockdown
of Economic Activity in the COVID-19 Event, US Manufacturing Underperforming
Below Trend in the Lost
Economic Cycle of the Global Recession with Economic Growth Underperforming
Below Trend Worldwide, Squeeze of Economic Activity
by Carry Trades Induced by Zero Interest Rates, Continuing Recovery of US
Economic Indicators, World Cyclical Slow Growth, and Government Intervention in
Globalization: Part II
Carlos M. Pelaez
© Carlos M. Pelaez, 2009,
2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020.
I United States Industrial Production
IIB Squeeze of Economic Activity by Carry Trades Induced
by Zero Interest Rates
III World Financial Turbulence
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
IIB
Squeeze of Economic Activity by Carry Trades Induced by Zero Interest Rates.
Long-term economic growth in Japan significantly improved by increasing
competitiveness in world markets. Net trade of exports and imports is an
important component of the GDP accounts of Japan. Table VB-3 provides quarterly
data for net trade, exports and imports of Japan. Net trade had strong positive
contributions to GDP growth in Japan in all quarters from IQ2007 to IIQ2009
with exception of IVQ2008, IIIQ2008 and IQ2009. The US recession is dated by
the National Bureau of Economic Research (NBER) as beginning in IVQ2007 (Dec)
and ending in IIQ2009 (Jun) (https://www.nber.org/cycles.html). Net trade
contributions helped to cushion the economy of Japan from the global recession.
Net trade deducted from GDP growth in six of the nine quarters from IVQ2010 to
IQ2012. The only strong contribution of net trade was 3.6 percent in IIIQ2011.
Net trade added 0.8 percent in IQ2012, deducting 2.0 percent in IIQ2012. Net
trade deducted 1.9 percent in IIIQ2012. Net traded deducted 0.4 percent in
IVQ2012. Net trade added 1.5 percentage points to GDP growth in IQ2013 but
deducted 0.1 percentage points in IIQ2013, deducting 1.3 percentage points in
IIIQ2013 and 2.2 percentage points in IVQ2013. Net trade deducted 0.7
percentage points from GDP growth in IQ2014. Net trade added 4.0 percentage
points to GDP growth in IIQ2014 and deducted 0.3 percentage points in IIIQ2014.
Net trade added 1.5 percentage points to GDP growth in IVQ2014. Net trade
contributed 0.2 percentage points to GDP growth in IQ2015 and deducted 0.5-percentage
points in IIQ2015. Net trade deducted 0.6 percentage points from GDP growth in
IIIQ2015. Net trade contributed 0.1 percentage points to GDP growth in IVQ2015
and added 1.4 percentage points in IQ2016. Net trade contributed 0.5 percentage
points to GDP growth in IIQ2016. Net trade added 1.2 percentage points to GDP
growth in IIIQ2016 and contributed 1.5 percentage points in IVQ2016. Net
trade contributed 0.4 percentage points to GDP growth in IQ2017 and deducted
0.9 percentage points in IIQ2017. Net trade contributed 2.1 percentage points
to GDP growth in IIIQ2017 and deducted 0.3 percentage-point in IVQ2017. Net
trade contributed 0.3 percentage points to GDP growth in IQ2018 and contributed
0.0 percentage points in IIQ2018. Net trade deducted 0.7 percentage points from
GDP growth in IIIQ2018 and deducted 2.0 percentage points in IVQ2018. Net trade
contributed 2.1 percentage points to GDP growth in IQ2019 with export
contraction deducting 1.3 percent and import contraction contributing 3.4
percent. Net trade deducted 1.2 percentage points from GDP growth in IIQ2019.
Net trade deducted 1.0 percentage points from GDP growth in IIIQ2019. Net trade
contributed 2.1 percentage points to GDP growth in IVQ2019 mostly by 1.8
percentage points of import contraction. Net trade deducted 0.9 percentage
points from GDP growth in IQ2020 with exports deducting 3.8 percent and import
contraction adding 2.9 percentage points. Net trade deducted 10.9 percentage
points from GDP growth in IIQ2020 in the global recession, with output in the US reaching a
high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event, with exports
deducting 11.3 percent and import contraction adding 0.4 percent Private consumption assumed the role of driver
of Japan’s economic growth but should moderate as in most mature economies.
Table VB-3,
Japan, Contributions to Changes in Real GDP, Seasonally Adjusted Annual Rates
(SAAR), %
|
|
Net Trade |
Exports |
Imports |
|
2020 |
|
|
|
|
I |
-0.9 |
-3.8 |
2.9 |
|
II |
-10.9 |
-11.3 |
0.4 |
|
2019 |
|
|
|
|
I |
2.1 |
-1.3 |
3.4 |
|
II |
-1.2 |
0.1 |
-1.3 |
|
III |
-1.0 |
-0.5 |
-0.5 |
|
IV |
2.1 |
0.3 |
1.8 |
|
2018 |
|
|
|
|
I |
0.3 |
0.8 |
-0.5 |
|
II |
0.0 |
0.6 |
-0.6 |
|
III |
-0.7 |
-1.7 |
1.0 |
|
IV |
-2.0 |
1.2 |
-3.2 |
|
2017 |
|
|
|
|
I |
0.4 |
1.5 |
-1.1 |
|
II |
-0.9 |
0.0 |
-0.9 |
|
III |
2.1 |
1.4 |
0.7 |
|
IV |
-0.3 |
1.4 |
-1.7 |
|
2016 |
|
|
|
|
I |
1.4 |
0.5 |
0.9 |
|
II |
0.5 |
-0.4 |
0.9 |
|
III |
1.2 |
1.5 |
-0.3 |
|
IV |
1.5 |
1.9 |
-0.4 |
|
2015 |
|
|
|
|
I |
0.2 |
0.9 |
-0.8 |
|
II |
-0.5 |
-2.5 |
1.9 |
|
III |
-0.6 |
1.7 |
-2.3 |
|
IV |
0.1 |
-0.6 |
0.7 |
|
2014 |
|
|
|
|
I |
-0.7 |
3.9 |
-4.6 |
|
II |
4.0 |
0.8 |
3.1 |
|
III |
-0.3 |
1.1 |
-1.3 |
|
IV |
1.5 |
2.1 |
-0.6 |
|
2013 |
|
|
|
|
I |
1.5 |
1.8 |
-0.3 |
|
II |
-0.1 |
1.9 |
-2.1 |
|
III |
-1.3 |
0.0 |
-1.3 |
|
IV |
-2.2 |
-0.3 |
-2.0 |
|
2012 |
|
|
|
|
I |
0.8 |
1.9 |
-1.1 |
|
II |
-2.0 |
-0.6 |
-1.4 |
|
III |
-1.9 |
-2.2 |
0.2 |
|
IV |
-0.4 |
-2.0 |
1.6 |
|
2011 |
|
|
|
|
I |
-1.3 |
-0.5 |
-0.8 |
|
II |
-4.3 |
-4.6 |
0.4 |
|
III |
3.6 |
5.5 |
-1.8 |
|
IV |
-2.8 |
-1.7 |
-1.1 |
|
2010 |
|
|
|
|
I |
2.0 |
3.3 |
-1.3 |
|
II |
0.3 |
2.8 |
-2.5 |
|
III |
0.7 |
1.7 |
-1.0 |
|
IV |
-0.2 |
0.2 |
-0.4 |
|
2009 |
|
|
|
|
I |
-4.7 |
-16.2 |
11.5 |
|
II |
7.5 |
4.6 |
2.9 |
|
III |
2.2 |
5.3 |
-3.1 |
|
IV |
2.8 |
4.2 |
-1.4 |
|
2008 |
|
|
|
|
I |
0.8 |
1.8 |
-1.0 |
|
II |
0.4 |
-1.5 |
1.9 |
|
III |
0.0 |
0.1 |
-0.2 |
|
IV |
-10.4 |
-9.2 |
-1.2 |
|
2007 |
|
|
|
|
I |
1.0 |
1.6 |
-0.5 |
|
II |
0.7 |
1.5 |
-0.8 |
|
III |
2.3 |
1.7 |
0.5 |
|
IV |
1.2 |
2.0 |
-0.8 |
Source:
Japan Economic and Social Research Institute, Cabinet Office
https://www.cao.go.jp/index-e.html
http://wwwa.cao.go.jp/notice/20191101notice.html
There
was milder increase in Japan’s export corporate goods price index during the
global recession in 2008 but similar sharp decline during the bank balance
sheets effect in late 2008, as shown in Chart IV-5 of the Bank of Japan. Japan
exports industrial goods whose prices have been less dynamic than those of
commodities and raw materials. As a result, the export CGPI on the yen basis in
Chart IV-5 trends down with oscillations after a brief rise in the final part
of the recession in 2009. The export corporate goods price index on the yen
basis fell from 93.9 in Jun 2009 to 84.1 in Jan 2012 or minus 10.4 percent and
increased to 90.0 in Aug 2020 for gain of 7.0 percent relative to Jan 2012 and
decrease of 4.2 percent relative to Jun 2009. The choice of Jun 2009 is
designed to capture the reversal of risk aversion beginning in Sep 2008 with
the announcement of toxic assets in banks that would be withdrawn with the
Troubled Asset Relief Program (TARP) (Cochrane and Zingales 2009). Reversal of
risk aversion in the form of flight to the USD and obligations of the US
government opened the way to renewed carry trades from zero interest rates to
exposures in risk financial assets such as commodities. Japan exports industrial
products and imports commodities and raw materials. The recovery from the
global recession began in the third quarter of 2009.
Chart IV-5, Japan, Export Corporate Goods Price Index,
Monthly, Yen Basis, 2008-2020
Source: Bank of Japan
https://www.stat-search.boj.or.jp/index_en.html
Chart IV-5A provides
the export corporate goods price index on the basis of the contract currency.
The export corporate goods price index on the basis of the contract currency
increased from 105.9 in Jun 2009 to 111.5 in Apr 2012 or 5.3 percent but
dropped to 97.3 in Aug 2020 or minus 12.7 percent relative to Apr 2012 and fell
8.1 percent to 97.3 in Aug 2020 relative to Jun 2009.
Chart IV-5A, Japan, Export Corporate Goods Price Index,
Monthly, Contract Currency Basis, 2008-2020
Source: Bank of Japan
https://www.stat-search.boj.or.jp/index_en.html
Japan imports primary
commodities and raw materials. As a result, the import corporate goods price
index on the yen basis in Chart IV-6 shows an upward trend after declining from
the increase during the global recession in 2008 driven by carry trades from
fed funds rates. The index increases with carry trades from zero interest rates
into commodity futures and declines during risk aversion from late 2008 into
beginning of 2008 originating in doubts about soundness of US bank balance
sheets. Measurement that is more careful should show that the terms of trade of
Japan, export prices relative to import prices, declined during the commodity
shocks originating in unconventional monetary policy. The decline of the terms
of trade restricted potential growth of income in Japan (for the relation of
terms of trade and growth see Pelaez 1979, 1976a). The import corporate goods
price index on the yen basis increased from 82.4 in Jun 2009 to 99.6 in Apr
2012 or 20.9 percent and to 82.5 in Aug 2020 or decrease of 17.2 percent
relative to Apr 2012 and increase of 0.1 percent relative to Jul 2009. There
are strong downward effects on input prices in the global recession, with output in the
US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event.
Chart IV-6, Japan, Import Corporate Goods Price Index,
Monthly, Yen Basis, 2008-2020
Source: Bank of Japan
https://www.stat-search.boj.or.jp/index_en.html
Chart
IV-6A provides the import corporate goods price index on the contract currency
basis. The import corporate goods price index on the basis of the contract
currency increased from 95.0 in Jun 2009 to 131.6 in Apr 2012 or 38.5 percent
and to 90.7 in Aug 2020 or minus 31.1 percent relative to Apr 2012 and decrease
of 4.5 percent relative to Jun 2009. There is evident deterioration of the
terms of trade of Japan: the export corporate goods price index on the basis of
the contract currency decreased 8.1 percent from Jun 2009 to Aug 2020 while the
import corporate goods price index decreased 4.5 percent. Prices of Japan’s
exports of corporate goods, mostly industrial products, increased only 5.3
percent from Jun 2009 to Apr 2012, while imports of corporate goods, mostly
commodities and raw materials, increased 38.5 percent. Unconventional monetary
policy induces carry trades from zero interest rates to exposures in
commodities that squeeze economic activity of industrial countries by increases
in prices of imported commodities and raw materials during periods without risk
aversion. Reversals of carry trades during periods of risk aversion decrease
prices of exported commodities and raw materials that squeeze economic activity
in economies exporting commodities and raw materials. Devaluation of the dollar
by unconventional monetary policy could increase US competitiveness in world
markets but economic activity is squeezed by increases in prices of imported
commodities and raw materials. Unconventional monetary policy causes
instability worldwide instead of the mission of central banks of promoting
financial and economic stability. There are strong downward effects on input prices in the
global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event.
Chart IV-6A, Japan, Import Corporate Goods Price Index,
Monthly, Contract Currency Basis, 2008-2020
Source: Bank of Japan
https://www.stat-search.boj.or.jp/index_en.html
Table IV-6B provides the Bank of Japan’s Corporate Goods
Price indexes of exports and imports on the yen and contract bases from Jan
2008 to Jul 2020. There are oscillations of the indexes that are shown vividly
in the four charts above. For the entire period from Jan 2008 to Aug 2020, the
export index on the contract currency basis decreased 9.3 percent and decreased
12.9 percent on the yen basis. For the entire period from Jan 2008 to Aug 2020,
the import price index decreased 18.2 percent on the contract currency basis
and decreased 21.3 percent on the yen basis. During significant part of the
expansion period, prices of Japan’s exports of corporate goods on the contract
currency, mostly industrial products, increased only 5.3 percent from Jun 2009
to Apr 2012, while prices of imports of corporate goods on the contract
currency, mostly commodities and raw materials, increased 38.5 percent. The
charts show sharp deteriorations in relative prices of exports to prices of
imports during multiple periods. Price margins of Japan’s producers are subject
to periodic squeezes resulting from carry trades from zero interest rates of
monetary policy to exposures in commodities. There are strong downward effects on input prices in the
global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event.
Table IV-6B,
Japan, Exports and Imports Corporate Goods Price Index, Contract Currency Basis
and Yen Basis
|
X-CC |
X-Y |
M-CC |
M-Y |
|
|
2008/01 |
107.3 |
103.3 |
110.9 |
104.8 |
|
2008/02 |
107.9 |
103.9 |
112.8 |
106.2 |
|
2008/03 |
108.7 |
100.7 |
115.1 |
103.4 |
|
2008/04 |
109.9 |
103.2 |
121.3 |
110.3 |
|
2008/05 |
110.7 |
105 |
124.9 |
114.9 |
|
2008/06 |
111.9 |
108 |
131.6 |
123.6 |
|
2008/07 |
113.2 |
109.2 |
135 |
126.8 |
|
2008/08 |
112.1 |
109.2 |
135.6 |
129.5 |
|
2008/09 |
111 |
105.8 |
129 |
120.8 |
|
2008/10 |
108.3 |
98.1 |
120.2 |
107 |
|
2008/11 |
106.6 |
93.5 |
107.7 |
93.2 |
|
2008/12 |
105.9 |
90 |
98.4 |
81.9 |
|
2009/01 |
106 |
89 |
94.3 |
77.9 |
|
2009/02 |
105.4 |
89.6 |
94.4 |
79 |
|
2009/03 |
105.2 |
93.2 |
93.8 |
81.9 |
|
2009/04 |
105.5 |
94.5 |
93 |
81.9 |
|
2009/05 |
105.4 |
92.9 |
92.5 |
80 |
|
2009/06 |
105.9 |
93.9 |
95 |
82.4 |
|
2009/07 |
105.4 |
92.2 |
98.3 |
83.7 |
|
2009/08 |
106.3 |
93.4 |
98.7 |
84.4 |
|
2009/09 |
106.3 |
91.4 |
100.2 |
83.4 |
|
2009/10 |
106 |
90.5 |
100.2 |
82.8 |
|
2009/11 |
106.4 |
90.2 |
102.2 |
83.5 |
|
2009/12 |
106.3 |
90.1 |
105.1 |
85.9 |
|
2010/01 |
107.5 |
91.4 |
106.8 |
88.1 |
|
2010/02 |
107.8 |
90.9 |
107.5 |
87.9 |
|
2010/03 |
107.8 |
91.1 |
106.8 |
87.4 |
|
2010/04 |
108.7 |
93.6 |
110 |
92.1 |
|
2010/05 |
108.9 |
92.1 |
112 |
92.4 |
|
2010/06 |
108.2 |
90.9 |
110.2 |
90.1 |
|
2010/07 |
107.5 |
88.6 |
110 |
87.9 |
|
2010/08 |
107.2 |
87.1 |
109.6 |
85.9 |
|
2010/09 |
107.5 |
86.8 |
110.2 |
85.6 |
|
2010/10 |
108.2 |
86.3 |
110.7 |
84.4 |
|
2010/11 |
108.9 |
87.1 |
113 |
86.5 |
|
2010/12 |
109.4 |
88 |
115 |
88.6 |
|
2011/01 |
110.4 |
88.2 |
118.1 |
90.4 |
|
2011/02 |
111.3 |
89 |
120.1 |
91.9 |
|
2011/03 |
111.9 |
89.1 |
123.2 |
93.6 |
|
2011/04 |
112.6 |
91 |
127.7 |
98.6 |
|
2011/05 |
112.3 |
89.4 |
130.9 |
99 |
|
2011/06 |
112.2 |
88.8 |
129.4 |
97.3 |
|
2011/07 |
112 |
88 |
130.3 |
97.1 |
|
2011/08 |
112 |
86.4 |
130.6 |
95.2 |
|
2011/09 |
112.1 |
86 |
128.9 |
93.6 |
|
2011/10 |
111.4 |
85.2 |
128.4 |
93 |
|
2011/11 |
110.2 |
84.8 |
127.1 |
92.8 |
|
2011/12 |
109.7 |
84.6 |
127.9 |
93.6 |
|
2012/01 |
110.1 |
84.1 |
126.7 |
91.8 |
|
2012/02 |
110.7 |
85.7 |
127.6 |
93.7 |
|
2012/03 |
111.3 |
88.8 |
130.3 |
99.5 |
|
2012/04 |
111.5 |
88.3 |
131.6 |
99.6 |
|
2012/05 |
110.6 |
86.2 |
130.1 |
96.7 |
|
2012/06 |
109.6 |
85 |
126.9 |
94 |
|
2012/07 |
108.8 |
84.1 |
123.4 |
91.2 |
|
2012/08 |
109.1 |
84.2 |
123.8 |
91.3 |
|
2012/09 |
109.2 |
84.2 |
126.3 |
92.7 |
|
2012/10 |
109.3 |
84.7 |
125.4 |
92.7 |
|
2012/11 |
109.1 |
85.8 |
124.7 |
93.8 |
|
2012/12 |
108.9 |
87.7 |
124.9 |
96.5 |
|
2013/01 |
109.2 |
91.6 |
125.4 |
101.7 |
|
2013/02 |
109.7 |
94.8 |
126.5 |
105.9 |
|
2013/03 |
109.5 |
95.4 |
126.8 |
107.5 |
|
2013/04 |
108.3 |
96.2 |
125.7 |
109.1 |
|
2013/05 |
107.7 |
97.6 |
124 |
110.4 |
|
2013/06 |
107.3 |
94.9 |
123.4 |
106.8 |
|
2013/07 |
107.2 |
96.2 |
122.9 |
108.2 |
|
2013/08 |
107 |
94.9 |
123.2 |
106.9 |
|
2013/09 |
107 |
95.9 |
124.5 |
109.2 |
|
2013/10 |
107.3 |
95.5 |
124.6 |
108.3 |
|
2013/11 |
107.2 |
96.6 |
124.6 |
110 |
|
2013/12 |
107.2 |
98.8 |
125.4 |
113.6 |
|
2014/01 |
107.3 |
99 |
126 |
114.6 |
|
2014/02 |
106.9 |
97.7 |
125.4 |
112.5 |
|
2014/03 |
106.6 |
97.6 |
124.9 |
112.2 |
|
2014/04 |
106.3 |
97.5 |
124.1 |
111.8 |
|
2014/05 |
106.2 |
96.8 |
123.8 |
110.9 |
|
2014/06 |
105.9 |
96.7 |
123.9 |
111.2 |
|
2014/07 |
106 |
96.5 |
123.9 |
110.9 |
|
2014/08 |
106.1 |
97.3 |
123.7 |
111.6 |
|
2014/09 |
105.9 |
99.3 |
122.8 |
114 |
|
2014/10 |
105.2 |
99.1 |
120.7 |
112.7 |
|
2014/11 |
104.8 |
103.4 |
117.8 |
115.9 |
|
2014/12 |
103.8 |
104.1 |
113.8 |
114 |
|
2015/01 |
102.2 |
101.2 |
108.2 |
106.6 |
|
2015/02 |
101.2 |
100.1 |
102.1 |
100.7 |
|
2015/03 |
101.3 |
100.9 |
103.1 |
102.6 |
|
2015/04 |
101.1 |
100.2 |
102 |
101 |
|
2015/05 |
101.4 |
101.4 |
101.6 |
101.5 |
|
2015/06 |
101.3 |
102.9 |
102.5 |
104.3 |
|
2015/07 |
100.6 |
101.7 |
101.5 |
102.9 |
|
2015/08 |
99.8 |
100.9 |
99 |
100.4 |
|
2015/09 |
98.6 |
98.2 |
96.6 |
96.2 |
|
2015/10 |
97.9 |
97.3 |
95.5 |
95 |
|
2015/11 |
97.5 |
98 |
94.9 |
95.7 |
|
2015/12 |
97.1 |
97.3 |
92.9 |
93.2 |
|
2016/01 |
96.4 |
94.7 |
89.9 |
88.3 |
|
2016/02 |
95.9 |
92.7 |
87.5 |
84.4 |
|
2016/03 |
96.1 |
92 |
87.3 |
83.2 |
|
2016/04 |
96.4 |
91 |
88.2 |
82.4 |
|
2016/05 |
96.5 |
90.6 |
88.6 |
82.4 |
|
2016/06 |
96.5 |
88.8 |
89.9 |
81.6 |
|
2016/07 |
96.9 |
88.2 |
90.8 |
81.5 |
|
2016/08 |
96.9 |
87.1 |
90.7 |
79.9 |
|
2016/09 |
97 |
87.5 |
91.1 |
80.7 |
|
2016/10 |
97.4 |
88.6 |
91.1 |
81.6 |
|
2016/11 |
98.1 |
91.2 |
93.8 |
86.3 |
|
2016/12 |
98.7 |
95.5 |
93.7 |
90.5 |
|
2017/01 |
99.4 |
95.6 |
96.1 |
92.1 |
|
2017/02 |
99.8 |
95.3 |
97.6 |
92.5 |
|
2017/03 |
100.3 |
95.7 |
98.4 |
93.3 |
|
2017/04 |
99.8 |
93.7 |
98.3 |
91.4 |
|
2017/05 |
99.4 |
94.6 |
98.1 |
92.6 |
|
2017/06 |
99.2 |
93.9 |
97.1 |
91 |
|
2017/07 |
99.3 |
94.9 |
96.3 |
91.2 |
|
2017/08 |
99.9 |
94.4 |
96.5 |
90.1 |
|
2017/09 |
100.5 |
95.5 |
97.8 |
91.8 |
|
2017/10 |
101.2 |
97.2 |
99.2 |
94.3 |
|
2017/11 |
101.5 |
97.4 |
100.3 |
95.4 |
|
2017/12 |
101.7 |
97.7 |
102.1 |
97.1 |
|
2018/01 |
101.9 |
97.1 |
102.9 |
96.7 |
|
2018/02 |
102.4 |
96.1 |
104.9 |
96.6 |
|
2018/03 |
102.6 |
95.2 |
104.4 |
94.9 |
|
2018/04 |
102.2 |
95.5 |
104.7 |
96.1 |
|
2018/05 |
102.7 |
96.9 |
106.3 |
98.8 |
|
2018/06 |
102.7 |
97 |
108.3 |
100.8 |
|
2018/07 |
102.4 |
97.4 |
108.3 |
101.8 |
|
2018/08 |
102.3 |
97 |
108 |
101.2 |
|
2018/09 |
102.2 |
97.4 |
108 |
101.8 |
|
2018/10 |
102.4 |
97.9 |
109.2 |
103.5 |
|
2018/11 |
102.1 |
97.9 |
109.7 |
104.3 |
|
2018/12 |
100.8 |
96.2 |
105.8 |
100.1 |
|
2019/01 |
100 |
93.7 |
102.6 |
94.8 |
|
2019/02 |
100.1 |
94.6 |
102.7 |
95.8 |
|
2019/03 |
100.4 |
95.3 |
103.6 |
97.2 |
|
2019/04 |
100.6 |
95.7 |
103.6 |
97.5 |
|
2019/05 |
100.5 |
94.4 |
104.5 |
97 |
|
2019/06 |
99.7 |
92.8 |
103.5 |
95 |
|
2019/07 |
99.3 |
92.6 |
101.4 |
93.2 |
|
2019/08 |
99.3 |
91.4 |
102.2 |
92.6 |
|
2019/09 |
98.7 |
91.4 |
100.7 |
91.9 |
|
2019/10 |
98.7 |
91.7 |
100.6 |
92.3 |
|
2019/11 |
98.5 |
92 |
100.3 |
92.5 |
|
2019/12 |
98.3 |
92 |
101.1 |
93.5 |
|
2020/01 |
98.6 |
92.4 |
101.6 |
94 |
|
2020/02 |
98.6 |
92.5 |
101.3 |
94.1 |
|
2020/03 |
97.9 |
90.4 |
98.1 |
89.6 |
|
2020/04 |
96.6 |
89.5 |
91.9 |
84.3 |
|
2020/05 |
95.6 |
88.3 |
86.6 |
79.3 |
|
2020/06 |
95.9 |
89 |
87 |
79.9 |
|
2020/07 |
96.8 |
89.6 |
89.2 |
81.5 |
|
2020/08 |
97.3 |
90 |
90.7 |
82.5 |
Note: X-CC:
Exports Contract Currency; X-Y: Exports Yen; M-CC: Imports Contract; M-Y:
Imports Yen
Source: Bank of
Japan
https://www.stat-search.boj.or.jp/index_en.html
Japan also experienced
sharp increase in inflation during the 1970s as in the episode of the Great
Inflation in the US. Monetary policy focused on accommodating higher inflation,
with emphasis solely on the mandate of promoting employment, has been blamed as
deliberate or because of model error or imperfect measurement for creating the
Great Inflation (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 and Appendix I The
Great Inflation; see Taylor 1993, 1997, 1998LB, 1999, 2012FP, 2012Mar27,
2012Mar28, 2012JMCB and http://cmpassocregulationblog.blogspot.com/2017/01/rules-versus-discretionary-authorities.html and earlier http://cmpassocregulationblog.blogspot.com/2012/06/rules-versus-discretionary-authorities.html). A remarkable
similarity with US experience is the sharp rise of the CGPI of Japan in 2008
driven by carry trades from policy interest rates rapidly falling to zero to
exposures in commodity futures during a global recession. Japan had the same
sharp waves of consumer price inflation during the 1970s as in the US (see
Chart IV-5A and associated table at: 6/28/20 https://cmpassocregulationblog.blogspot.com/2020/06/mediocre-cyclical-united-states.html 5/24/20 https://cmpassocregulationblog.blogspot.com/2020/05/recovery-without-hiring-twenty-million.html
5/3/20 https://cmpassocregulationblog.blogspot.com/2020/05/mediocre-cyclical-united-states_78.html
3/22/20 https://cmpassocregulationblog.blogspot.com/2020/03/sharp-contraction-of-valuations-of-risk.html 2/23/20 https://cmpassocregulationblog.blogspot.com/2020/02/declining-valuations-of-risk-financial.html https://cmpassocregulationblog.blogspot.com/2020/01/declining-valuations-of-risk-financial.html https://cmpassocregulationblog.blogspot.com/2019/12/oscillating-valuations-of-risk.html https://cmpassocregulationblog.blogspot.com/2019/11/oscillating-risk-financial-assets-world.html https://cmpassocregulationblog.blogspot.com/2019/10/dollar-depreciation-fluctuating.html https://cmpassocregulationblog.blogspot.com/2019/09/uncertain-fomc-outlook-of-monetary.html
https://cmpassocregulationblog.blogspot.com/2019/08/contraction-of-valuations-of-risk.html https://cmpassocregulationblog.blogspot.com/2019/07/global-manufacturing-stress-world.html https://cmpassocregulationblog.blogspot.com/2019/06/fomc-outlook-uncertainty-central-bank.html https://cmpassocregulationblog.blogspot.com/2019/05/contraction-of-risk-financial-assets.html https://cmpassocregulationblog.blogspot.com/2019/04/high-levels-of-valuations-of-risk.html https://cmpassocregulationblog.blogspot.com/2019/03/inverted-yield-curve-of-treasury.html https://cmpassocregulationblog.blogspot.com/2019/02/revaluation-of-yuanus-dollar-exchange.html https://cmpassocregulationblog.blogspot.com/2019/01/delays-in-updating-united-states.html https://cmpassocregulationblog.blogspot.com/2018/12/increase-of-interest-rates-by-monetary.html https://cmpassocregulationblog.blogspot.com/2018/11/weaker-world-economic-growth-with.html https://cmpassocregulationblog.blogspot.com/2018/10/contraction-of-valuations-of-risk.html https://cmpassocregulationblog.blogspot.com/2018/09/world-inflation-waves-united-states.html https://cmpassocregulationblog.blogspot.com/2018/08/revision-of-united-states-national.html https://cmpassocregulationblog.blogspot.com/2018/07/continuing-gradual-increases-in-fed.html https://cmpassocregulationblog.blogspot.com/2018/06/world-inflation-waves-united-states.html https://cmpassocregulationblog.blogspot.com/2018/05/dollar-strengthening-world-inflation.html https://cmpassocregulationblog.blogspot.com/2018/04/dollar-appreciation-mediocre-cyclical.html https://cmpassocregulationblog.blogspot.com/2018/03/mediocre-cyclical-united-states_31.html https://cmpassocregulationblog.blogspot.com/2018/03/mediocre-cyclical-united-states.html https://cmpassocregulationblog.blogspot.com/2018/02/twenty-four-million-unemployed-or.html https://cmpassocregulationblog.blogspot.com/2017/12/dollar-devaluation-cyclically.html https://cmpassocregulationblog.blogspot.com/2017/12/twenty-one-million-unemployed-or.html https://cmpassocregulationblog.blogspot.com/2017/10/dollar-revaluation-and-increase-of.html https://cmpassocregulationblog.blogspot.com/2017/10/destruction-of-household-nonfinancial.html https://cmpassocregulationblog.blogspot.com/2017/08/dollar-devaluation-and-interest-rate.html https://cmpassocregulationblog.blogspot.com/2017/07/data-dependent-monetary-policy-with_30.html https://cmpassocregulationblog.blogspot.com/2017/07/dollar-devaluation-and-rising-yields.html https://cmpassocregulationblog.blogspot.com/2017/05/mediocre-cyclical-united-states.html https://cmpassocregulationblog.blogspot.com/2017/04/dollar-devaluation-mediocre-cyclical.html https://cmpassocregulationblog.blogspot.com/2017/04/mediocre-cyclical-economic-growth-with.html https://cmpassocregulationblog.blogspot.com/2017/03/rising-valuations-of-risk-financial.html http://cmpassocregulationblog.blogspot.com/2017/01/rising-valuations-of-risk-financial.html http://cmpassocregulationblog.blogspot.com/2017/01/rules-versus-discretionary-authorities.html http://cmpassocregulationblog.blogspot.com/2016/11/dollar-revaluation-rising-yields-and.html http://cmpassocregulationblog.blogspot.com/2016/10/mediocre-cyclical-united-states_30.html http://cmpassocregulationblog.blogspot.com/2016/10/mediocre-cyclical-united-states.html http://cmpassocregulationblog.blogspot.com/2016/08/and-as-ever-economic-outlook-is.html http://cmpassocregulationblog.blogspot.com/2016/07/business-fixed-investment-has-been-soft.html http://cmpassocregulationblog.blogspot.com/2016/07/financial-asset-values-rebound-from.html http://cmpassocregulationblog.blogspot.com/2016/05/appropriate-for-fed-to-increase.html http://cmpassocregulationblog.blogspot.com/2016/03/contraction-of-united-states-corporate.html http://cmpassocregulationblog.blogspot.com/2016/02/mediocre-cyclical-united-states.html http://cmpassocregulationblog.blogspot.com/2016/01/closely-monitoring-global-economic-and.html http://cmpassocregulationblog.blogspot.com/2015/12/dollar-revaluation-and-decreasing.html http://cmpassocregulationblog.blogspot.com/2015/11/dollar-revaluation-constraining.html http://cmpassocregulationblog.blogspot.com/2015/11/interest-rate-increase-considered.html http://cmpassocregulationblog.blogspot.com/2015/11/interest-rate-increase-considered.htmlhttp://cmpassocregulationblog.blogspot.com/2015/09/monetary-policy-designed-on-measurable.html
http://cmpassocregulationblog.blogspot.com/2015/08/fluctuations-of-global-financial.html http://cmpassocregulationblog.blogspot.com/2015/08/turbulence-of-valuations-of-financial_77.html http://cmpassocregulationblog.blogspot.com/2015/06/international-valuations-of-financial_29.html http://cmpassocregulationblog.blogspot.com/2015/06/dollar-revaluation-squeezing-corporate_97.html http://cmpassocregulationblog.blogspot.com/2015/05/dollar-devaluation-and-carry-trade.html http://cmpassocregulationblog.blogspot.com/2015/03/dollar-revaluation-and-financial-risk.html http://cmpassocregulationblog.blogspot.com/2015/03/irrational-exuberance-mediocre-cyclical.html http://cmpassocregulationblog.blogspot.com/2015/02/financial-and-international.html http://cmpassocregulationblog.blogspot.com/2014/12/valuations-of-risk-financial-assets.html http://cmpassocregulationblog.blogspot.com/2014/09/financial-volatility-mediocre-cyclical.html http://cmpassocregulationblog.blogspot.com/2014/09/geopolitical-and-financial-risks_71.html http://cmpassocregulationblog.blogspot.com/2014/03/financial-uncertainty-mediocre-cyclical_8145.html http://cmpassocregulationblog.blogspot.com/2014/03/financial-risks-slow-cyclical-united.html http://cmpassocregulationblog.blogspot.com/2014/02/mediocre-cyclical-united-states.html http://cmpassocregulationblog.blogspot.com/2013/12/collapse-of-united-states-dynamism-of.html http://cmpassocregulationblog.blogspot.com/2013/12/exit-risks-of-zero-interest-rates-world_1.html and earlier http://cmpassocregulationblog.blogspot.com/2013/10/twenty-eight-million-unemployed-or_561.html and at http://cmpassocregulationblog.blogspot.com/2013/09/increasing-interest-rate-risk_1.html http://cmpassocregulationblog.blogspot.com/2012/07/recovery-without-jobs-stagnating-real_09.html).
Chart IV-7, Japan, Domestic Corporate Goods Price Index,
Monthly, 1960-2020
Source: Bank of Japan
https://www.stat-search.boj.or.jp/index_en.html
The
producer price index of the US from 1960 to 2020 in Chart IV-8 shows various
periods of more rapid or less rapid inflation but no bumps. The major event is
the decline in 2008 when risk aversion because of the global recession caused
the collapse of oil prices from $148/barrel to less than $80/barrel with most
other commodity prices also collapsing. The event had nothing in common with
explanations of deflation but rather with the concentration of risk exposures
in commodities after the decline of stock market indexes. Eventually, there was
a flight to government securities because of the fears of insolvency of banks
caused by statements supporting proposals for withdrawal of toxic assets from
bank balance sheets in the Troubled Asset Relief Program (TARP), as explained
by Cochrane and Zingales (2009). The bump in 2008 with decline in 2009 is
consistent with the view that zero interest rates with subdued risk aversion
induce carry trades into commodity futures.
Chart IV-8, US, Producer Price Index Finished Goods, Monthly,
1960-2020
Source: US Bureau of Labor Statistics
There
are two categories of responses in the Empire State Manufacturing Survey of the
Federal Reserve Bank of New York (https://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 Dec 2010 to Sep 2020. The index of current prices paid or
costs of inputs moved from 16.1 in Dec 2012 to 25.2 in Sep 2020 while the index
of current prices received or sales prices moved from 1.1 in Dec 2012 to 6.5 in
Sep 2020. The farther the index is from the area of no change at zero, the
faster the rate of change. Prices paid or costs of inputs at 25.2 in Sep 2020
are expanding at faster pace than prices received or of sales of products at 6.5.
The index of future prices paid or expectations of costs of inputs in the next
six months moved from 51.6 in Dec 2012 to 33.1 in Sep 2020 while the index of
future prices received or expectation of sales prices in the next six months
moved from 25.8 in Dec 2012 to 7.9 in Sep 2020. Prices paid or of inputs at 33.1
in Sep 2020 are expected to increase at a faster pace in the next six months
than prices received or prices of sales products at 7.9 in Sep 2020. Prices of
sales of finished products are less dynamic than prices of costs of inputs
during waves of increases. Prices 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. Instability of sales/costs margins discourages investment and hiring.
Table IV-5, US,
FRBNY Empire State Manufacturing Survey, Diffusion Indexes, Prices Paid and
Prices Received, SA
|
Current
Prices Paid |
Current
Prices Received |
Future Prices
Paid |
Future Prices
Received |
|
|
12/31/2010 |
28.4 |
3.4 |
58 |
38.6 |
|
1/31/2011 |
35.8 |
15.8 |
60 |
42.1 |
|
2/28/2011 |
45.8 |
16.9 |
55.4 |
27.7 |
|
3/31/2011 |
53.2 |
20.8 |
71.4 |
36.4 |
|
4/30/2011 |
57.7 |
26.9 |
56.4 |
38.5 |
|
5/31/2011 |
69.9 |
28 |
68.8 |
35.5 |
|
6/30/2011 |
56.1 |
11.2 |
55.1 |
19.4 |
|
7/31/2011 |
43.3 |
5.6 |
51.1 |
30 |
|
8/31/2011 |
28.3 |
2.2 |
42.4 |
15.2 |
|
9/30/2011 |
32.6 |
8.7 |
53.3 |
22.8 |
|
10/31/2011 |
22.5 |
4.5 |
40.4 |
18 |
|
11/30/2011 |
18.3 |
6.1 |
36.6 |
25.6 |
|
12/31/2011 |
24.4 |
3.5 |
57 |
36 |
|
1/31/2012 |
26.4 |
23.1 |
53.8 |
30.8 |
|
2/29/2012 |
25.9 |
15.3 |
62.4 |
34.1 |
|
3/31/2012 |
50.6 |
13.6 |
66.7 |
32.1 |
|
4/30/2012 |
45.8 |
19.3 |
50.6 |
22.9 |
|
5/31/2012 |
37.3 |
12 |
57.8 |
22.9 |
|
6/30/2012 |
19.6 |
1 |
34 |
17.5 |
|
7/31/2012 |
7.4 |
3.7 |
35.8 |
16 |
|
8/31/2012 |
16.5 |
2.4 |
31.8 |
14.1 |
|
9/30/2012 |
19.1 |
5.3 |
40.4 |
23.4 |
|
10/31/2012 |
17.2 |
4.3 |
44.1 |
24.7 |
|
11/30/2012 |
14.6 |
5.6 |
39.3 |
15.7 |
|
12/31/2012 |
16.1 |
1.1 |
51.6 |
25.8 |
|
1/31/2013 |
22.6 |
10.8 |
38.7 |
21.5 |
|
2/28/2013 |
26.3 |
8.1 |
44.4 |
13.1 |
|
3/31/2013 |
25.8 |
2.2 |
50.5 |
23.7 |
|
4/30/2013 |
28.4 |
5.7 |
44.3 |
14.8 |
|
5/31/2013 |
20.5 |
4.5 |
29.5 |
14.8 |
|
6/30/2013 |
21 |
11.3 |
45.2 |
17.7 |
|
7/31/2013 |
17.4 |
1.1 |
28.3 |
12 |
|
8/31/2013 |
20.5 |
3.6 |
41 |
19.3 |
|
9/30/2013 |
21.5 |
8.6 |
39.8 |
24.7 |
|
10/31/2013 |
21.7 |
2.4 |
45.8 |
25.3 |
|
11/30/2013 |
17.1 |
-3.9 |
42.1 |
17.1 |
|
12/31/2013 |
15.7 |
3.6 |
48.2 |
27.7 |
|
1/31/2014 |
36.6 |
13.4 |
45.1 |
23.2 |
|
2/28/2014 |
25 |
15 |
40 |
23.8 |
|
3/31/2014 |
21.2 |
2.4 |
43.5 |
25.9 |
|
4/30/2014 |
22.4 |
10.2 |
33.7 |
14.3 |
|
5/31/2014 |
19.8 |
6.6 |
31.9 |
14.3 |
|
6/30/2014 |
17.2 |
4.3 |
36.6 |
16.1 |
|
7/31/2014 |
25 |
6.8 |
37.5 |
18.2 |
|
8/31/2014 |
27.3 |
8 |
42 |
21.6 |
|
9/30/2014 |
23.9 |
17.4 |
43.5 |
32.6 |
|
10/31/2014 |
11.4 |
6.8 |
42 |
26.1 |
|
11/30/2014 |
10.6 |
0 |
41.5 |
25.5 |
|
12/31/2014 |
10.4 |
6.3 |
40.6 |
32.3 |
|
1/31/2015 |
12.6 |
12.6 |
33.7 |
15.8 |
|
2/28/2015 |
14.6 |
3.4 |
27 |
5.6 |
|
3/31/2015 |
12.4 |
8.2 |
32 |
12.4 |
|
4/30/2015 |
19.1 |
4.3 |
38.3 |
13.8 |
|
5/31/2015 |
9.4 |
1 |
26 |
7.3 |
|
6/30/2015 |
9.6 |
1 |
24 |
5.8 |
|
7/31/2015 |
7.4 |
5.3 |
27.7 |
6.4 |
|
8/31/2015 |
7.3 |
0.9 |
34.5 |
10.9 |
|
9/30/2015 |
4.1 |
-5.2 |
28.9 |
7.2 |
|
10/31/2015 |
0.9 |
-8.5 |
27.4 |
7.5 |
|
11/30/2015 |
4.5 |
-4.5 |
29.1 |
11.8 |
|
12/31/2015 |
4 |
-4 |
27.3 |
20.2 |
|
1/31/2016 |
16 |
4 |
31 |
12 |
|
2/29/2016 |
3 |
-5 |
14.9 |
4 |
|
3/31/2016 |
3 |
-5.9 |
19.8 |
7.9 |
|
4/30/2016 |
19.2 |
2.9 |
27.9 |
5.8 |
|
5/31/2016 |
16.7 |
-3.1 |
28.1 |
6.3 |
|
6/30/2016 |
18.4 |
-1 |
29.6 |
7.1 |
|
7/31/2016 |
18.7 |
1.1 |
26.4 |
7.7 |
|
8/31/2016 |
15.5 |
2.1 |
25.8 |
9.3 |
|
9/30/2016 |
17 |
1.8 |
41.1 |
20.5 |
|
10/31/2016 |
22.6 |
4.7 |
35.8 |
30.2 |
|
11/30/2016 |
15.5 |
2.7 |
39.1 |
20.9 |
|
12/31/2016 |
22.6 |
3.5 |
42.6 |
22.6 |
|
1/31/2017 |
36.1 |
17.6 |
50.4 |
27.7 |
|
2/28/2017 |
37.8 |
19.4 |
38.8 |
25.5 |
|
3/31/2017 |
31 |
8.8 |
41.6 |
19.5 |
|
4/30/2017 |
32.8 |
12.4 |
37.2 |
25.5 |
|
5/31/2017 |
20.9 |
4.5 |
38.1 |
22.4 |
|
6/30/2017 |
20 |
10.8 |
33.1 |
13.8 |
|
7/31/2017 |
21.3 |
11 |
30.7 |
15.7 |
|
8/31/2017 |
31 |
6.2 |
33.3 |
21.7 |
|
9/30/2017 |
35.8 |
13.8 |
42.3 |
18.7 |
|
10/31/2017 |
27.3 |
7 |
41.4 |
25 |
|
11/30/2017 |
24.6 |
9.2 |
48.5 |
23.8 |
|
12/31/2017 |
29.7 |
11.6 |
50 |
27.5 |
|
1/31/2018 |
36.2 |
21.7 |
52.9 |
31.2 |
|
2/28/2018 |
48.6 |
21.5 |
52.1 |
25.7 |
|
3/31/2018 |
50.3 |
22.4 |
55.9 |
28 |
|
4/30/2018 |
47.4 |
20.7 |
54.8 |
31.1 |
|
5/31/2018 |
54 |
23 |
54 |
29.5 |
|
6/30/2018 |
52.7 |
23.3 |
51.2 |
27.1 |
|
7/31/2018 |
42.7 |
22.2 |
48.7 |
28.2 |
|
8/31/2018 |
45.2 |
20 |
53.3 |
26.7 |
|
9/30/2018 |
46.3 |
16.3 |
56.1 |
30.9 |
|
10/31/2018 |
42 |
14.3 |
52.9 |
23.5 |
|
11/30/2018 |
44.5 |
13.1 |
59.1 |
31.4 |
|
12/31/2018 |
39.7 |
12.8 |
51.9 |
27.6 |
|
1/31/2019 |
35.9 |
13.1 |
47.6 |
28.3 |
|
2/28/2019 |
27.1 |
22.9 |
37.1 |
30.7 |
|
3/31/2019 |
34.1 |
18.1 |
40.6 |
23.9 |
|
4/30/2019 |
27.3 |
14 |
37.1 |
16.1 |
|
5/31/2019 |
26.2 |
12.4 |
33.1 |
17.2 |
|
6/30/2019 |
27.8 |
6.8 |
36.8 |
12.8 |
|
7/31/2019 |
25.5 |
5.8 |
39.4 |
18.2 |
|
8/31/2019 |
23.2 |
4.5 |
38.1 |
12.9 |
|
9/30/2019 |
29.4 |
9.2 |
42.5 |
17 |
|
10/31/2019 |
23.1 |
6.3 |
42.5 |
21.3 |
|
11/30/2019 |
20.5 |
6.2 |
42.5 |
26 |
|
12/31/2019 |
15.2 |
4.3 |
39.1 |
29 |
|
1/31/2020 |
31.5 |
14.4 |
43.8 |
29.5 |
|
2/29/2020 |
25 |
16.7 |
37.9 |
22.7 |
|
3/31/2020 |
24.5 |
10.1 |
34.5 |
17.3 |
|
4/30/2020 |
5.8 |
-8.4 |
14.9 |
0.6 |
|
5/31/2020 |
4.1 |
-7.4 |
20.3 |
2 |
|
6/30/2020 |
16.9 |
-0.6 |
25.6 |
7.5 |
|
7/31/2020 |
14.9 |
-4.5 |
28.6 |
10.4 |
|
8/31/2020 |
16 |
4.7 |
22.7 |
9.3 |
|
9/30/2020 |
25.2 |
6.5 |
33.1 |
7.9 |
Source: Federal
Reserve Bank of New York
https://www.newyorkfed.org/survey/empire/empiresurvey_overview.html
Price indexes of the Federal Reserve Bank of
Philadelphia Outlook Survey are in Table IV-5A. As in inflation waves
throughout the world (https://cmpassocregulationblog.blogspot.com/2020/08/d-ollar-devaluation-and-yuan.html and earlier https://cmpassocregulationblog.blogspot.com/2020/07/contraction-of-household-wealth-by-14.html), indexes of
both current and expectations of future prices paid and received were quite
until May 2011. Prices paid, or inputs, were more dynamic, reflecting carry
trades from zero interest rates to commodity futures. All indexes softened
after May 2011 with even decline of prices received in Aug 2011 during the
first round of risk aversion. Current and future price indexes have increased
again but not back to the intensity in the beginning of 2011 because of risk
aversion frustrating carry trades even induced by zero interest rates. The
index of prices paid or prices of inputs moved from 21.1 in Dec 2012 to 25.1 in
Sep 2020. The index of current prices received was minus 2.4 in Apr 2013,
indicating decrease of prices received. The index of current prices received
decreased from 9.1 in Dec 2012 to minus 5.2 in Sep 2015, decreasing to minus
3.6 in Feb 2016. The index of current prices received was 18.4 in Sep 2020. The
index of current prices paid or costs of inputs at 25.1 in Sep 2020 indicates
faster expansion than the index of current prices received or sales prices of
production in Sep 2020, showing 18.4. Prices paid indicate faster expansion
than prices received during most of the history of the index. The index of
future prices paid moved to 57.7 in Sep 2020 from 41.8 in Dec 2012 while the
index of future prices received moved from 21.7 in Dec 2012 to 42.4 in Aug
2020. Expectations are incorporating faster increases in prices of inputs or
costs of production, 57.7 in Sep 2020, than of sales prices of goods, 42.4 in Sep
2020, forcing companies to manage tightly costs and labor inputs. Volatility of
margins of sales/costs discourages investment and hiring.
Table IV-5A,
US, Federal Reserve Bank of Philadelphia Business Outlook Survey, Current and
Future Prices Paid and Prices Received, SA
|
Current
Prices Paid |
Current Prices
Received |
Future Prices
Paid |
Future Prices
Received |
|
|
Dec-10 |
42.7 |
5.3 |
56.3 |
24.2 |
|
Jan-11 |
48.2 |
12.6 |
58.8 |
34.5 |
|
Feb-11 |
61.5 |
13.7 |
68.2 |
31.6 |
|
Mar-11 |
59.2 |
17.9 |
61.6 |
33.5 |
|
Apr-11 |
52.7 |
22.9 |
56.5 |
36.4 |
|
May-11 |
51.2 |
20.6 |
54.9 |
28.5 |
|
Jun-11 |
36 |
6.1 |
40.8 |
6.9 |
|
Jul-11 |
34.1 |
5.7 |
48.3 |
17.2 |
|
Aug-11 |
23.5 |
-3.2 |
42.7 |
22.9 |
|
Sep-11 |
30.1 |
6.4 |
38.3 |
20.5 |
|
Oct-11 |
22.7 |
1.7 |
41.4 |
27.4 |
|
Nov-11 |
21.8 |
5.2 |
34.4 |
26.3 |
|
Dec-11 |
25 |
5.6 |
42.7 |
21.1 |
|
Jan-12 |
26.1 |
9.3 |
47.9 |
21.7 |
|
Feb-12 |
33.5 |
10.5 |
51.1 |
26.4 |
|
Mar-12 |
17.4 |
6.9 |
38.7 |
24.8 |
|
Apr-12 |
21.8 |
9.6 |
37.3 |
25.2 |
|
May-12 |
10.1 |
1.1 |
40.4 |
9.3 |
|
Jun-12 |
1.1 |
-6.4 |
32.9 |
16.9 |
|
Jul-12 |
8.2 |
3.3 |
27.3 |
20.4 |
|
Aug-12 |
16.2 |
6.9 |
35 |
24 |
|
Sep-12 |
13 |
2.8 |
38.3 |
24.8 |
|
Oct-12 |
17.4 |
4.8 |
44.2 |
14.5 |
|
Nov-12 |
22.2 |
4.8 |
45.7 |
10.7 |
|
Dec-12 |
21.1 |
9.1 |
41.8 |
21.7 |
|
Jan-13 |
13 |
0.9 |
35 |
21.6 |
|
Feb-13 |
13 |
0.3 |
34.9 |
23.2 |
|
Mar-13 |
13.4 |
1 |
35.2 |
20.4 |
|
Apr-13 |
11.5 |
-2.4 |
31.9 |
16.8 |
|
May-13 |
12.5 |
0.3 |
35.4 |
19.5 |
|
Jun-13 |
16.8 |
11.2 |
29.6 |
24.2 |
|
Jul-13 |
19.1 |
5.6 |
40.2 |
24.7 |
|
Aug-13 |
17.8 |
12.8 |
34.1 |
23.4 |
|
Sep-13 |
22.3 |
11.8 |
37.3 |
27.2 |
|
Oct-13 |
17.9 |
9.2 |
41.5 |
33.7 |
|
Nov-13 |
23.5 |
6.7 |
40.7 |
36.2 |
|
Dec-13 |
17.5 |
9.2 |
39.9 |
28.1 |
|
Jan-14 |
20 |
8.4 |
37.5 |
13.6 |
|
Feb-14 |
16.4 |
10.3 |
28.7 |
19.8 |
|
Mar-14 |
21.3 |
6.8 |
33.1 |
20.3 |
|
Apr-14 |
20.8 |
10 |
39.9 |
21.5 |
|
May-14 |
26.6 |
17 |
39.2 |
29.8 |
|
Jun-14 |
25.7 |
9.3 |
42.3 |
30 |
|
Jul-14 |
30.7 |
14.2 |
36.5 |
21.7 |
|
Aug-14 |
21.9 |
6.2 |
44.9 |
28.4 |
|
Sep-14 |
21.7 |
7.8 |
39.1 |
25.7 |
|
Oct-14 |
24.4 |
17.4 |
30.8 |
20.7 |
|
Nov-14 |
14.4 |
8.9 |
32.3 |
18 |
|
Dec-14 |
16 |
12.3 |
24.9 |
19.6 |
|
Jan-15 |
11.8 |
2.1 |
30.7 |
20.8 |
|
Feb-15 |
6 |
3.4 |
34.3 |
22.5 |
|
Mar-15 |
1.5 |
-5.6 |
29.2 |
9.2 |
|
Apr-15 |
0.5 |
-3.5 |
22.1 |
14.5 |
|
May-15 |
-14.1 |
-7.7 |
24.2 |
20.7 |
|
Jun-15 |
9.2 |
-0.3 |
39.1 |
12.4 |
|
Jul-15 |
17.8 |
0.8 |
33.8 |
16.2 |
|
Aug-15 |
3.8 |
-3.2 |
35 |
8.9 |
|
Sep-15 |
-2.8 |
-5.2 |
25.6 |
4.6 |
|
Oct-15 |
-0.4 |
-0.4 |
17.1 |
7.5 |
|
Nov-15 |
-6.9 |
-1.5 |
22.6 |
9.3 |
|
Dec-15 |
-7.7 |
-4.5 |
23.3 |
13 |
|
Jan-16 |
-1.7 |
-3.9 |
19.8 |
11.6 |
|
Feb-16 |
-2.9 |
-3.6 |
12.7 |
4.7 |
|
Mar-16 |
-0.9 |
1.3 |
22.4 |
13.5 |
|
Apr-16 |
11.5 |
3.7 |
38.5 |
23.1 |
|
May-16 |
13.5 |
10.4 |
25.7 |
15.1 |
|
Jun-16 |
20.3 |
2 |
36.5 |
18.3 |
|
Jul-16 |
13.4 |
2.2 |
28.6 |
22.7 |
|
Aug-16 |
20.5 |
7.1 |
32 |
13.8 |
|
Sep-16 |
20.5 |
9.9 |
41 |
31.6 |
|
Oct-16 |
10.5 |
-0.9 |
40.3 |
26.6 |
|
Nov-16 |
27.5 |
19.5 |
37 |
28.3 |
|
Dec-16 |
29.6 |
11.1 |
42.9 |
27.7 |
|
Jan-17 |
32.4 |
24.4 |
49.1 |
28.2 |
|
Feb-17 |
30.5 |
11.9 |
47.1 |
24.9 |
|
Mar-17 |
40.5 |
18.7 |
52.5 |
37.7 |
|
Apr-17 |
30.6 |
13.7 |
38.8 |
30.5 |
|
May-17 |
24.5 |
13.1 |
43.9 |
26.8 |
|
Jun-17 |
23.4 |
18.9 |
43.7 |
30.1 |
|
Jul-17 |
20.2 |
10 |
48.6 |
30.2 |
|
Aug-17 |
23.5 |
13.7 |
37.6 |
37.9 |
|
Sep-17 |
33.8 |
23.4 |
47.7 |
32.1 |
|
Oct-17 |
40.2 |
15.7 |
58.4 |
39.4 |
|
Nov-17 |
38.9 |
12.4 |
52.5 |
41.6 |
|
Dec-17 |
26.2 |
14.7 |
53.2 |
38.3 |
|
Jan-18 |
34.1 |
23.7 |
56.2 |
45.3 |
|
Feb-18 |
46.5 |
23.7 |
64.6 |
49.5 |
|
Mar-18 |
43.7 |
20.8 |
61.2 |
49.6 |
|
Apr-18 |
53.5 |
28.1 |
70.4 |
49.2 |
|
May-18 |
50.8 |
33.6 |
61.8 |
36.7 |
|
Jun-18 |
51 |
33.4 |
64.3 |
56.8 |
|
Jul-18 |
59.1 |
36 |
60.7 |
50.4 |
|
Aug-18 |
57 |
32.3 |
60.4 |
59.1 |
|
Sep-18 |
39.5 |
21.3 |
49.6 |
42.5 |
|
Oct-18 |
40.5 |
25.6 |
54.6 |
51.1 |
|
Nov-18 |
41.7 |
25.3 |
57.8 |
57.2 |
|
Dec-18 |
36.3 |
28.3 |
56.7 |
44 |
|
Jan-19 |
32.2 |
24.8 |
41.5 |
34.9 |
|
Feb-19 |
23.8 |
26.5 |
41.1 |
30.8 |
|
Mar-19 |
21.7 |
24.5 |
48.1 |
32.6 |
|
Apr-19 |
22.2 |
20.2 |
32.7 |
28.1 |
|
May-19 |
23 |
17.6 |
42 |
38.7 |
|
Jun-19 |
13.7 |
2.7 |
32.9 |
26.6 |
|
Jul-19 |
16.4 |
11.2 |
36.1 |
33.5 |
|
Aug-19 |
14.7 |
13.5 |
38.9 |
28.7 |
|
Sep-19 |
29.7 |
19.7 |
44.9 |
33.8 |
|
Oct-19 |
15 |
15.4 |
34.8 |
29.8 |
|
Nov-19 |
8.5 |
12 |
40.2 |
36.1 |
|
Dec-19 |
15.9 |
11 |
46 |
45.1 |
|
Jan-20 |
22.1 |
14.7 |
41.9 |
34 |
|
Feb-20 |
16.4 |
17.1 |
32.2 |
37.9 |
|
Mar-20 |
4.8 |
6.8 |
18.5 |
21.5 |
|
Apr-20 |
-9.3 |
-10.6 |
25.5 |
16.9 |
|
May-20 |
3.2 |
-3.1 |
21.2 |
15.6 |
|
Jun-20 |
11.1 |
11 |
44.3 |
28.9 |
|
Jul-20 |
15.7 |
11.5 |
43 |
24.7 |
|
Aug-20 |
15.3 |
12.4 |
37.7 |
30.2 |
|
Sep-20 |
25.1 |
18.4 |
57.7 |
42.4 |
Source: Federal
Reserve Bank of Philadelphia
https://www.philadelphiafed.org
Chart IV-1 of the Business Outlook Survey of the Federal Reserve
Bank of Philadelphia Outlook Survey provides the diffusion index of current
prices paid or prices of inputs from 2006 to 2020. In the middle of deep global
contraction after IVQ2007, input prices continued to increase in speculative
carry trades from central bank policy rates falling toward zero into
commodities futures. The index peaked above 70 in the second half of 2008.
Inflation of inputs moderated significantly during the shock of risk aversion
in late 2008, even falling briefly into contraction territory below zero during
several months in 2009 in the flight away from risk financial assets into US
government securities (Cochrane and Zingales 2009) that unwound carry trades.
Return of risk appetite induced carry trade with significant increase until
return of risk aversion in the first round of the European sovereign debt
crisis in Apr 2010. Carry trades returned during risk appetite in expectation
that the European sovereign debt crisis was resolved. The various inflation
waves originating in carry trades induced by zero interest rates with
alternating episodes of risk aversion are mirrored in the prices of inputs
after 2011, in particular after Aug 2012 with the announcement of the Outright
Monetary Transactions Program of the European Central Bank (http://www.ecb.int/press/pr/date/2012/html/pr120906_1.en.html). Subsequent risk aversion and
flows of capital away from commodities into stocks and high-yield bonds caused
sharp decline in the index of prices paid followed by another recent rebound
with marginal decline and new increase. The index falls, rebounds and falls
again in the final segment but there are no episodes of contraction after 2009
with exception of minus 14.1 in May 2015, minus 2.8 in Sep 2015, 0.4 in Oct
2015, minus 6.9 in Nov 2015 and minus 7.7 in Dec 2015. The reading for the
index in Jan 2016 is minus 1.7 and minus 2.9 for Feb 2016. The index is minus
0.9 in Mar 2016 and 11.5 in Apr 2016, increasing at 13.5 in May 2016 and 20.3
in Jun 2016. The index reached 13.4 in Jul 2016, 20.5 in Aug 2016 and 20.5 in
Sep 2016. The index was 10.5 in Oct 2016 and 25.1 in Sep 2020.
Chart IV-1, Federal Reserve Bank of Philadelphia Business
Outlook Survey Current Prices Paid Diffusion Index SA
Source: Federal Reserve Bank of Philadelphia
https://www.philadelphiafed.org/
Chart IV-2 of the Federal Reserve Bank of Philadelphia Outlook
Survey provides the diffusion index of current prices received from 2006 to
2020. The significant difference between the index of current prices paid in
Chart IV-1 and the index of current prices received in Chart IV-2 is that
increases in prices paid are significantly sharper than increases in prices
received. There were several periods of negative readings of prices received
from 2010 to 2016. Prices paid increased at 1.1 in Mar 2015 while prices
received contracted at 5.6. There were several contractions of prices paid: 7.7
in May 2015 for prices received with faster contraction of 14.1 of prices paid;
minus 2.8 for prices paid in Sep 2015 with minus 5.2 for prices received; and
minus 0.4 for prices paid in Oct 2015
with minus 1.5 for prices received. The index of prices received fell to minus
1.5 in Nov 2015 with minus 6.9 for prices paid and to minus 4.5 in Dec 2015
with minus 7.7 for prices paid. The index of prices received fell to minus 3.6
in Feb 2016 with minus 2.9 for prices paid. The index of prices paid decreased
at 0.9 in Mar 2016 with increase at 1.3 for prices received. Prices paid moved
to 25.1 in Sep 2020 while prices received moved to 18.4. Prices received
relative to prices paid deteriorate most of the time largely because of the
carry trades from zero interest rates to commodity futures. Profit margins of
business are compressed intermittently by fluctuations of commodity prices
induced by unconventional monetary policy of zero interest rates, frustrating
production, investment and hiring decisions of business, which is precisely the
opposite outcome pursued by unconventional monetary policy.
Chart IV-2,
Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices
Received Diffusion Index SA
Source: Federal
Reserve Bank of Philadelphia
https://www.philadelphiafed.org/
The Business Outlook survey
of the FRB of Philadelphia for Aug 2020 states (https://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2020/bos0820): “The
survey’s price indicators remained positive and were little changed this month.
The prices paid diffusion index was essentially unchanged at 15.3. More than 21
percent of the firms reported increases in input prices, and 6 percent reported
decreases; most firms (73 percent) reported no change. The current prices
received index, reflecting manufacturers’ own prices, increased 1 point to
12.4. Over 16 percent of the firms reported increases in prices of their own
manufactured goods, and 4 percent reported decreases; most firms (80 percent)
reported no change.”
The Business Outlook survey
of the FRB of Philadelphia for Sep 2020 states (https://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2020/bos0920): “The
survey’s price indicators remained positive and increased this month (see Chart
2). The prices paid diffusion index increased 10 points to 25.1. Nearly 29
percent of the firms reported increases in input prices, and 4 percent reported
decreases; most firms (68 percent) reported no change. The current prices
received index, reflecting manufacturers’ own prices, increased 6 points to
18.4. Over 22 percent of the firms reported increases in prices of their own
manufactured goods, up from 16 percent in August.”
Chart IV-2Sep2020, Federal Reserve Bank of Philadelphia
Business Outlook Survey Current Prices Paid and Received Diffusion Index SA
Source: Federal Reserve Bank of Philadelphia
https://www.philadelphiafed.org/
© Carlos M. Pelaez, 2009,
2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020.
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