Tag Archives: Inflation

As exports struggle, Israel’s economy faces slower growth

supermarket employee in Israel

By Steven Scheer

JERUSALEM (Reuters) – For decades, Israel’s high growth was driven by exports of oranges, diamonds, pharmaceuticals and software, but the picture is changing due to weak global demand and a strong shekel.

Consumer spending is now a critical growth driver. Businesses fear factories and jobs are at risk if exports, which have declined 10 percentage points over the past decade, fall further.

“We are exporting 80 percent less than our peak” a decade ago, said Joseph Ben-Dor, chief executive of Ben-Dor Fruits & Nurseries on the Jordan River in northern Israel.

Ben-Dor, whose family started the business in 1888, said his main market is Europe, particularly Britain where his largest customers for plums and other fruits are Tesco, Marks & Spencer, Morrisons and Waitrose. He largely blames a strong shekel, rising water, labor and other costs, and government obstacles for lower sales abroad.

Diamond exports, 25-30 percent of Israel’s industrial exports, have slid 30 percent in the past few years, mainly on slower global demand, said Yoram Dvash, president of the Israel Diamond Exchange. Exports to China, a key market, have plunged 70 percent in the last 18 months.

Citing weak global growth that has hurt exports, Israel’s Finance Ministry on Wednesday lowered its economic growth forecast for 2016 to 2.5 percent from 2.8 percent and trimmed estimates through 2019.

The Bank of Israel last month cut its growth estimate from 2.8 percent to 2.4 percent for 2016 and 2.9 percent in 2017.

When exports are hot, Israel’s economy tends to grow between 4 and 5 percent a year. With flat or declining exports in 2014, 2015 and probably again this year, growth is closer to 2.5 percent, well below the average of 4.5 percent from 2004-2011.

“If the trend continues we can witness sustained private consumption growth but we will shift to a lower growth rate,” Nathan Sussman, head of research at the Bank of Israel, said. “Growth will likely be in the 2.5 to 3 percent range if it stays this way.”

With the population growing 2 percent a year, that amounts to per capita growth of just 0.5-1 percent.

NO MAGIC PILL

Ten years ago, net exports accounted for 41 percent of output. Now the ratio is 31 percent. While that tops the 13 percent in the United States and 27 percent for Europe, the decline has strained the economy.

“We need to target growth of 4 to 5 percent so if you want to reach that, you need to turn on the engine of exports,” said Shraga Brosh, president of Israel’s Manufacturers’ Association.

Brosh said the government needed to invest more in research and development and encourage small- and medium-sized factories to become more efficient through tax incentives.

Ohad Cohen, head of the Foreign Trade Administration in the Economy Ministry, said there was only so much the government could do. “We don’t have any magic pill,” he said.

Still, the ministry supports exporters with insurance guarantees and in opening new markets. In recent years, it has doubled the number of offices in Asia to 16. Asia now accounts for 22 percent of Israel’s exports, compared with 31 percent for Europe and 25 percent for the United States.

Israel plans to invest in penetrating markets in Africa and Latin America, Cohen said.

Exports excluding diamonds and start-ups are forecast to fall 1.5 percent this year after a similar decline in 2015. Much of the weakness has come from Europe, in part because the euro has lost 15 percent against the shekel since late 2014.

Another issue is that three companies – Intel, Israel Chemicals (ICL) and Teva Pharmaceutical Industries – control nearly half of industrial exports. For various reasons they have trimmed output.

Intel is shifting production to a new chip plant in Israel, while falling demand and prices for potash have weighed on ICL. Teva said its exports are “characterized with monthly and seasonal fluctuations” but are not falling on an annual basis.

Concerned by sluggish exports, the central bank continues to buy dollars to try to prevent further shekel strength. It has bought about $70 billion of foreign currency since 2008, but the shekel has not weakened enough to spur an export recovery.

(Editing by Janet Lawrence)

Housing, medical care support U.S. underlying inflation

Job seekers at job fair

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. consumer prices moderated in May, but sustained increases in housing and healthcare costs kept underlying inflation supported, which could allow the Federal Reserve to raise interest rates this year.

While another report on Thursday showed an increase in the number of Americans applying for unemployment benefits last week, the trend remained consistent with a healthy labor market. The data came a day after the Fed downgraded its assessment of the jobs market and gave a mixed view of the economy.

The Labor Department said its Consumer Price Index increased 0.2 percent last month, slowing from April’s 0.4 percent rise. Gasoline prices rose modestly and the cost of food fell.

In the 12 months through May, the CPI gained 1.0 percent after advancing 1.1 percent in April.

Stripping out the volatile food and energy components, the so-called core CPI, increased 0.2 percent after a similar gain in April. That took the year-on-year core CPI rise to 2.2 percent from 2.1 percent in April.

Economists polled by Reuters had forecast the CPI gaining 0.3 percent last month and the core CPI rising 0.2 percent.

The Fed has a 2 percent inflation target and tracks an inflation measure which is currently at 1.6 percent. The U.S. central bank on Wednesday kept interest rates unchanged and said it expected inflation to remain below its target through 2017.

While the Fed signaled it still planned two rate hikes this year, there was less conviction, with six officials expecting only a single increase, up from one in March. The Fed raised its benchmark overnight interest rate in December for the first time in nearly a decade.

The dollar extended losses against the yen on the data, while prices for U.S. government debt were little changed.

FOOD PRICES FALL

Last month, gasoline prices rose 2.3 percent after surging 8.1 percent in April. Food prices fell 0.2 percent, reversing the prior month’s increase.

Within the core CPI basket, housing and medical costs maintained their upward trend. Owners’ equivalent rent of primary residence rose 0.3 percent after rising by the same margin in April.

Medical care costs increased 0.3 percent after a similar gain in April. The cost of hospital services shot up 0.7 percent after rising 0.3 percent the prior month. Doctor visit costs rose 1.0 percent, but the cost of prescription medicine fell 0.4 percent after increasing 0.7 percent in April.

Apparel prices rose 0.8 percent. The cost of used cars and trucks dropped 1.3 percent, the biggest fall since March 2009. Prices for new motor vehicles fell 0.1 percent.

In a second report, the Labor Department said initial claims for state unemployment benefits increased 13,000 to a seasonally adjusted 277,000 for the week ended June 11.

The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, slipped 250 to 269,250 last week.

Jobless claims have now been below 300,000, a threshold associated with a strong job market, for 67 straight weeks, the longest streak since 1973. The Fed said on Wednesday “the pace of improvement in the labor market has slowed while growth in economic activity appears to have picked up.”

The U.S. central bank also noted that while the unemployment rate had declined, “job gains have diminished.”

But with job openings near record highs, both economists and Fed officials expect job growth to pick up after the economy added only 38,000 jobs in May, the smallest increase since September 2010.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

India’s wholesale prices rise for first time in 18 months in April

Stacks of rice

NEW DELHI (Reuters) – India’s wholesale prices <INWPI=ECI> unexpectedly rose for the first time in 18 months, posting an annual gain of 0.34 percent, driven up by higher costs for food and manufactured items, government data showed on Monday.

The data compared with a 0.20 percent annual decline forecast by economists in a Reuters poll. In March, prices fell a provisional 0.85 percent.

Wholesale food prices last month rose 4.23 percent year-on-year, compared with a provisional 3.73 percent gain in March. Prices of manufactured goods increased 0.71 percent year on year in April.

Fuel prices dropped 4.83 percent from a year earlier in April, slower than a provisional 8.30 percent fall a month ago.

(Reporting by Rajesh Kumar Singh; Editing by Malini Menon)

U.S. Retail sales strongly boost economic outlook

A man in short sleeves carries shopping bags near Herald Square during unseasonably warm weather in Manhattan

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. retail sales in April recorded their biggest increase in a year as Americans stepped up purchases of automobiles and a range of other goods, suggesting the economy was regaining momentum after growth almost stalled in the first quarter.

The jump in sales reported by the Commerce Department on Friday is a boost for the sector that has been hit by sluggish demand. It comes days after major retailers, including Macy’s and Nordstrom, reported sales tumbled in the first quarter and lowered their full-year profit forecasts.

“The retail sales report shows that recent claims of the demise of the U.S. consumer have been greatly exaggerated,” said Steve Murphy, a U.S. economist at Capital Economics in Toronto.

Retail sales surged 1.3 percent last month, the largest gain since March 2015, after dropping 0.3 percent in March. Excluding automobiles, gasoline, building materials and food services, retail sales shot up 0.9 percent last month after an upwardly revised 0.2 percent gain in March.

These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

They were previously reported to have gained 0.1 percent in March. Economists had forecast retail sales rising 0.8 percent and core retail sales gaining 0.3 percent last month.

Signs of an acceleration in consumer spending keep an interest rate hike from the Federal Reserve next month on the table.

“Today’s data materially strengthen the hand of those within the Fed for a rate increase in June but we remain doubtful as to whether this view will prevail, barring an especially robust employment report in early June,” said Anthony Karydakis, chief economic strategist at Miller Tabak in New York.

Consumer spending prospects got a boost from a separate report showing sentiment among households jumped to an 11-month high in early May.

The University of Michigan said its consumer sentiment index surged 6.8 points to 95.8 early this month, the highest reading since June. Sentiment increased among all income and age groups, with big gains among lower-income and younger households.

Last month’s strong core retail sales increase could prompt economists to raise their second-quarter GDP, currently hovering around a 2 percent annualized rate. Economic growth braked to a 0.5 percent pace in the first three months of the year after expanding at a 1.4 percent pace in the fourth quarter.

But another report from the Commerce Department on Friday showing a 0.4 percent increase in business inventories in March suggest growth was much higher than initially estimated.

Data on retail sales, construction spending and factory orders have already implied that the advance GDP growth estimate could be raised to a 0.9 percent rate when the government publishes its revision later this month.

The dollar rose against the euro and the yen after the data, while prices for U.S. government debt fell. U.S. stocks were trading lower.

Retail sales have been sluggish in part because the strengthening labor market has not generated strong wage growth.

Economists also say that some of the savings from cheaper gasoline over the past year-and-a-half have been absorbed by rising rents and medical care costs.

Macy’s, the largest department chain, said this week same-store sales fell 5.6 percent in the first quarter, and expected full-year sales to decline 3-4 percent.

Nordstrom reported that sales at stores open at least a year fell 1.7 percent in the first quarter. It cut its profit forecast for the year to $2.50-$2.70 per share from $3.10-$3.35.

The Commerce Department report showed retail sales in April rose across all categories, with the exception of building materials and garden equipment. Auto sales advanced 3.2 percent, the largest increase since March 2015, after slumping 3.2 percent in March.

Receipts at service stations increased 2.2 percent, reflecting recent increases in gasoline prices. Sales at clothing stores surged 1.0 percent, the largest increase since May 2015.

Online retail sales jumped 2.1 percent, the biggest gain since June 2014. Receipts at sporting goods and hobby stores rose 0.2 percent last month.

Sales at electronics and appliance outlets increased 0.5 percent. Building materials and garden equipment store receipts, however, fell 1.0 percent last month, the largest decline since August. Sales at restaurants and bars rose 0.3 percent.

In a separate report, the Labor Department said its producer price index climbed 0.2 percent last month after slipping 0.1 percent in March. In the 12 months through April, the PPI was unchanged after dipping 0.1 percent in March.

Inflation continues to be restrained by the lingering effects of the dollar’s surge and oil price plunge. The greenback gained 20 percent against the currencies of the United States’ trading partners between June 2014 and December 2015.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

Americans see slightly higher inflation as uncertainty grows

Detail from the front of the United States Federal Reserve Board

NEW YORK (Reuters) – An increasingly important gauge of U.S. inflation expectations edged higher last month but remained broadly depressed, as Americans said they were less certain about prices in the years ahead.

In what could be welcome news for the Federal Reserve, the New York Fed’s April survey of consumers released on Monday found expectations for inflation one year ahead rose to 2.6 percent, from 2.5 percent in March, while three-year-out expectations jumped to 2.8 percent, the highest reading in five months.

The U.S. central bank wants to be confident that inflation is headed higher before raising interest rates for a second time, after its December “liftoff” from near zero. The New York Fed gauge is still close to its lowest levels since it was launched in mid-2013.

The monthly survey also showed median inflation uncertainty jumped sharply. The one-year-ahead measure was at its highest level in five months while the three-year measure was at its highest in six months.

The internet-based survey taps a rotating group of 1,200 households and is done by a separate organization.

(Reporting by Jonathan Spicer; Editing by Meredith Mazzilli)

Dollar under pressure, on track for biggest quarterly fall in five years

One Dollar Bills

By Anirban Nag

LONDON (Reuters) – The U.S. dollar fell to its lowest level in five months against the euro on Thursday in trade dominated by month-end rebalancing flows, putting the dollar index on track for its worst quarterly performance in five years.

These flows are caused by global portfolio managers adjusting their existing currency hedges, with many banks taking the view that they could weigh on the dollar.

The dollar index <.DXY> was on track for its biggest monthly fall since April 2015 and its largest quarterly loss since March 2011, as dovish comments from Federal Reserve Chair Janet Yellen continued to resonate, prompting investors and speculators to cut favourable bets in the greenback.

The index was down 0.2 percent at 94.555 <.DXY>, a five-month low. The dollar was flat against the yen at 112.25 yen <JPY=>, while the euro was up 0.3 percent at $1.1383 <EUR=>, its highest since October 2015.

The common currency was on track to post a quarterly gain of 4.7 percent.

“Things have settled down a bit after those comments from Yellen, with the focus turning to the U.S. jobs data on Friday,” said Nordea FX strategist Niels Christensen.

“More than the employment numbers, what will be important are the average earnings, and if that misses expectations, then we could see the dollar come under more pressure,” Christensen added. “Yellen has left the dollar vulnerable to the downside.”

INFLATION SIGNS

U.S. nonfarm payrolls are expected to show the world’s largest economy added 205,000 jobs in March, with the jobless rate steady at 4.9 percent. Average earnings, seen as signalling inflation trends, are expected to rise by 0.2 percent. <ECONUS>

Despite signs of inflation picking up in the United States, Yellen said on Tuesday the Fed would proceed cautiously in raising rates and she highlighted external risks such as slower global growth.

Chicago Fed President Charles Evans on Wednesday underscored that caution, saying a “very shallow” series of rate hikes over the next few years is appropriate to buffer the economy from outside shocks and the risk of inflation slipping too low.

In the European session, the euro zone inflation showed some signs of improvement, but traders were cautious about pushing the euro too much higher, given the European Central Bank’s ultra-accommodative policy stance. <ECONEZ>

“The euro is likely to enter a period of range trading around the $1.10 level for the rest of the year,” said Petr Krpata, currency strategist at ING.

“The range-trading argument is based on fading effecting monetary divergence between the Fed and the ECB. The ECB seems to be reluctant to cut the depo rate further into negative territory while the Fed is unlikely to embark on an aggressive tightening cycle.”

(Additional reporting by Hideyuki Sano; Editing by Gareth Jones)

U.S. inflation survey tumbles in red flag for Fed

NEW YORK (Reuters) – An increasingly important gauge of U.S. inflation tumbled last month to its lowest level since the Federal Reserve Bank of New York began the survey in mid-2013, in what could be taken as another warning bell for the U.S. central bank.

The New York Fed’s survey of consumers found expectations for inflation one and three years in the future fell as Americans were more cognizant of lower gasoline prices and costs of medical care and college.

One-year median expectations have fallen three months running and hit 2.42 percent in January, from 2.54 percent in December. The three-year ahead prediction was 2.45 percent last month, well down from 2.78 percent the previous month.

Respondents on the younger and older ends of the range, and those with lower education and income, drove the decline, said the New York Fed, whose survey has been increasingly cited by economists and central bankers themselves as a read on when inflation will return to a 2-percent target.

The Fed raised rates in December and aims to keep tightening. But a market selloff in January and worries over a global slowdown has some Fed officials worried that inflation, at 1.4 percent now according to their preferred measure, will not rebound as soon as desired.

The internet-based survey taps a rotating panel of 1,200 household heads, and is done by an outside organization.

(Reporting by Jonathan Spicer; Editing by Andrea Ricci)

Argentina Puts Government Freeze On Grocery Prices

In an attempt to control the runaway inflation crippling the country, Argentina has announced the government is banning any increases in the price of groceries.

A group that represents two thirds of the supermarkets in the nation agreed to freeze prices until at least April 1. The government has set up a hotline, asking citizens to keep their receipts and call the government if they notice any groceries have gone up in price. Continue reading →