Week in Review: Global Inflation Climbs

Consumers around the world are paying much higher prices for basics like shelter, food, and gasoline as Russia’s Ukraine invasion further disrupts supply chains and cuts off access to oil and food exports. After a pandemic-related wave of higher prices, the conflict is now pushing global inflation higher.

In the U.S. consumer prices rose 8,5% in March while prices in the UK climbed 7% with the U.S. consumer price index, which measures a wide-ranging basket of goods and services, jumping to its highest level since December 1981. To combat inflation, the Federal Reserve has begun raising interest rates and is expected to continue doing so through the remainder of the year.

However, there were signs that U.S. core inflation appeared to be moderating (core inflation excludes food and energy), with core CPI increasing 6.5% on a 12-month basis, rising 0.3% for the month of March, less than the 0.5% estimate. Sparking hopes that inflation is easing and that March might represent the peak.

In other central bank news, the Bank of Canada and the Reserve Bank of New Zealand each raised rates 50 basis points this week also in an effort to combat rising inflation.

China’s latest Covid lockdowns are adding to global inflation concerns, over the last several weeks the world’s second largest economy has tackled its worst Covid wave. Chinese health authorities on Thursday reported more than 29,000 new infections, the highest daily tally since the pandemic broke out in the central city of Wuhan more than two years ago. The country’s zero-tolerance approach has seen up to forty-five cities, accounting for up to 40% of China’s economic output, implementing a full or partial lockdown. China’s producer price index and consumer price index rose faster-than-expected in March, according to data out Monday.

The major U.S. indices ended the holiday-shortened week posting weekly losses. Some of the major banks kicked off Q1 earnings season with mixed results. Earning releases will hit full stride next week, as seven Dow blue-chip names report: IBM, Procter & Gamble, Travelers, Dow Inc, Johnson & Johnson, American Express and Verizon which should give investors insight into how corporates are navigating the higher inflationary environment. The S&P 500 ended down 2.13% for the four-day holiday week with the Nasdaq Composite off 2.63%, and the Dow down 0.78%.

The European Central Bank (“ECB”) reiterated that it would end its asset purchase program in the third quarter as it seeks to balance inflation which reached 7,5% in March. ECB President Christine Lagarde said, after the meeting, that policymakers would “maintain optionality, gradualism, and flexibility in the conduct of our monetary policy.” She also said there was no clear timetable for raising interest rates. Markets are pricing in a rate rise of about 0.7% by the end of the year. In local currency terms, the pan-European STOXX Europe 50 Index ended the holiday-shortened week slightly lower (-0.24%) while the UK’s FTSE 100 fell 0.79% as energy stocks weakened.

Japan’s stock markets gained over the four-day period, with the Nikkei 225 Index rising 0.40% with Bank of Japan (BoJ) Governor Haruhiko Kuroda asserting that Japan’s economy will continue to recover despite surging commodity prices and that the bank would maintain its monetary stimulus to support the still-fragile post-coronavirus recovery. In China, markets retreated over the week as surging coronavirus outbreaks fuelled concerns around slowing economic activity and supply chain disruptions. The benchmark Shanghai Composite Index was down 1.34% over the week.

Market Moves of the Week

A devastating flood in South Africa's eastern coastal province, KwaZulu-Natal, has left at least 341 people dead, the South African government said on Thursday. The province was declared a disaster area on Wednesday after heavy rains flooded homes, washed away roads and bridges, and disrupted shipping in one of Africa's busiest ports.

In economic news, South African retail trade sales fell for the month of February 0.9% year on year, Statistics South Africa (Stats SA) said on Wednesday. This compared with market expectations of a 1.1% increase. On a seasonally adjusted monthly basis, retail trade was down 0.5% from January.

The JSE All-Share Index was down on the week with the financial (-4.23%) and industrial (-1.56%) sectors coming under pressure, while resource counters were modestly off for the week. By Thursday’s close, the rand was trading at R14.65 to the U.S. Dollar.

Chart of the Week

China’s imports fell in March and export growth slowed, with Covid lockdowns disrupting port operations and weakening domestic demand. Imports fell 0.1% from a year earlier in dollar terms, the first drop since August 2020 while exports grew 14.7%, customs data showed Wednesday, slower than the 16.3% increase in the combined figures for January and February.