French inflation beats expectations

Chris Scicluna
Emily Nicol

Tokyo inflation jumps largely on the back of higher prices of energy and food
Today’s Tokyo CPI figures for February gave signs that higher cost burdens are being passed on to consumers. In particular, headline Tokyo inflation rose a stronger-than-expected 0.4ppt to 1.0%Y/Y, the highest since December 2019. Admittedly, the upwards pressure this month principally stemmed from high energy prices, which were up by more than 4%M/M – the most since September 2012 – to leave the annual rate up 4.3ppts to 24.2%Y/Y, the highest since March 1981, with electricity and gas price inflation jumping to 24.0%Y/Y and 26.0%Y/Y respectively. But core inflation (excluding fresh foods) rose 0.3ppt to 0.5%Y/Y. And when also excluding energy, core inflation edged up 0.1ppt, albeit remaining firmly in negative territory at -0.6%Y/Y. The internationally comparable rate of core CPI (excluding all food and energy prices) stood at -1.1%Y/Y.

Of course, much of the weakness in inflation stems from the government’s initiative to cut mobile phone tariffs, which continued to knock more than 1ppts off the headline rate. And within the detail today there were signs that higher costs associated with persisting supply bottlenecks were feeding through. For example, there was a further uptick in recreational durable goods inflation, with prices of cameras up 15.2%Y/Y the highest for 7½ years, TV sets up 4.7%Y/Y and PCs up 2.3%Y/Y, the highest since 2019. Clothing inflation also rose 1ppt to 3.8%Y/Y, a two-year high. And with the effects related to the timing of ‘go to travel’ subsidies having dropped out of the annual calculation at the start of the year, recreational services inflation added an extra 0.1ppt to headline inflation too.

Looking ahead, headline inflation will take a notable step up in April when the drag from mobile tariffs falls out of the annual calculation. And given the spike in energy prices, our colleagues in Tokyo have revised higher their forecast for national core inflation over the near term, projecting that the BoJ’s forecast measure of CPI (excluding fresh foods) will jump to 1.8%Y/Y in April. Thereafter, much will depend on energy prices as well as exchange rate developments and global demand. However, our colleagues expect inflation to ease back to just below 1½% in Q3 and close to 1%Y/Y in Q4.

French inflation beats expectations on broad-based pressures
Having surprised on the downside last month, the flash measure of French inflation in February – the first to come from the euro area member states – exceeded expectations. The national CPI measure rose 0.7ppt to 3.6%Y/Y, the highest since 2008, and the EU-harmonised HICP measure rose 0.8ppt to a series high of 4.1%Y/Y, with increasingly broad-based pressures. Having been suppressed last month by shifts in the timing of New Year discounting, inflation of manufactured goods jumped 1.6ppts to 2.2%Y/Y, the highest since 1992, as firms chose to pass on some of their increased costs to consumers. And inflation of services rose 0.2ppt to 2.2%Y/Y, the highest since 2009. Inflation of fresh food continued to rise, up 1.6ppts to 5.6%Y/Y. And with increased prices of petrol at the pump, energy prices rose 3.5%M/M to push the respective inflation rate up 1.1ppts to 21.0%Y/Y – a rate that would be markedly higher still were it not for the government’s measures to limit the rise in household energy bills. We saw earlier this week that the erosion of real incomes by inflation is increasingly weighing on French consumer confidence. And after other data this morning showed that French consumer spending on goods fell a larger-than-expected 1.5%M/M in January after a flat December, private consumption in Q1 looks set to be very subdued indeed.

Commission’s sentiment survey to signal higher activity and prices in February
This morning will bring the European Commission’s detailed economic sentiment indicators, which like the flash PMIs, are likely suggested a pickup in activity thanks not least to the drop in new coronavirus cases across the region. But the survey seems bound to flag persisting and increasingly broad-based price pressures too, as well as only limited easing of supply bottlenecks. Against this backdrop, the drop in the Commission’s consumer confidence indicator is likely to confirm the decline reported in the flash release to an eleven-month low of -8.8. The ECB’s latest bank lending numbers for January area also due.

UK consumer confidence plunges signalling a weak spending outlook on inflation fears
While yesterday’s CBI survey suggested that UK consumer spending has held up this month, the latest GfK survey published overnight signalled a sharp drop in household confidence that foreshadows the likelihood of increasing weakness ahead. The headline index dropped 7pts – the most since the onset of the pandemic – to a thirteen-month low of -26, well below the long-run average and consistent with a drop in spending ahead. With increasing concerns about inflation, all major sub-indices fell significantly. Strikingly, expectations regarding personal finances over the coming twelve months were judged to be the worst since the first wave of the pandemic in April 2020, and were considered to have been inferior only once in the past 25 years, back in the midst of the financial crisis in 2008. And the climate for making major purchases was considered the worst in twelve months, with the respective indicator well below the long-run average and consistent with falling spending.

US personal income and spending numbers to be watched
Today brings the most notable new US releases of the week in the shape of the January personal income and spending numbers and associated deflators, as well durable goods orders data for the same month. Consistent with last week’s strong retail sales numbers, Daiwa America’s Mike Moran expects spending to have grown about 1.5%M/M, more than fully reversing December’s drop of 1.0%M/M. And in light of the CPI report, he expects the core PCE deflator to rise 0.5%M/M taking the annual rate up to 5.2%Y/Y, the highest since the early 1980s. Preliminary durable goods data should also report a return to growth in January after the dip at end-2021, benefitting from a rebound in the volatile aircraft component. This afternoon will also bring the updated University of Michigan consumer sentiment survey, the preliminary results of which were exceptionally weak.

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