Japanese PPI illustrates elevated pipeline pressures exacerbated by the weaker yen
Today’s Japanese producer goods inflation for June came in a touch firmer than expected, suggesting persisting pipeline pressures at the factory gate. In particular, producer prices rose 0.7%M/M in June, bang in the line with the average of the prior six months, to leave goods PPI inflation at 9.2%Y/Y, admittedly down 0.1ppt from May and a five-month low. The pick up on the month reflected higher prices of petroleum (4.1%M/M), chemicals (2.1%M/M), electricity and gas (1.6%M/M), which were all exacerbated by the weaker yen. Indeed, while the annual growth in import prices slowed almost 2ppts to 25.8%Y/Y on a contract currency basis, they accelerated almost 2ppts to 46.3%Y/Y in yen terms. In contrast, export prices were up ‘just’ 5.9%Y/Y on a contract currency basis and 19.1%Y/Y in yen terms, highlighting the deterioration in Japan’s terms of trade over the past year. Expect further pass-through of producer price pressures to final consumer prices over the remainder of the year.
UK retail sales survey illustrated marked hit to discretionary spending amid rising prices
The UK’s BRC retail sales monitor for June was predictably weak. Despite a temporary boost to food sales due to the long bank holiday weekend at the start of the month, total sales in June were down for the fourth consecutive month and by 1%Y/Y, with like-for-like sales down 1.3%Y/Y. But while clothing sales were encouraged by the warmer weather, the BRC noted that discretionary spending was hit hard in June, particularly white goods and homeware, amid tighter household budgets. Indeed, like-for-like non-food sales were down more than 4%3M/Y, while food sales were up 1.6%3M/Y, the first such rise in eight months.
Admittedly, the year-on-year comparison was likely weakened by a strong reading this time last year when the economy emerged from the second lockdown. But at the same time it was also flattered by rising prices. Certainly, when adjusting with the BRC shop price measure, the retail sales monitor suggested in real terms that retail sales were down more than 4%Y/Y.
Looking ahead, BoE Governor Bailey this evening will give a speech on how the impact of Covid-19 and the influence of longer-term structural forces will affect the economic landscape and policy-making in the years to come.
German ZEW investor survey likely to echo pessimism recorded in the Sentix
In the euro area, the most notable new data release today will be the German ZEW investor survey for July. Like the Sentix survey published last week, the ZEW release might well flag investor expectations of recession ahead amid ongoing concerns about energy supply. Indeed, the current situation balance is forecast to have declined around 7pts on the month, albeit remaining just above May’s recent trough, while the expectations index is expected to drop more than 12pts close to one of the weakest readings on the survey. Meanwhile, the Bank of France’s latest monthly economic update is also scheduled to be published later today.
US small business survey likely to report increased pessimism amid recession talk
In the US, another quiet day for economic data brings just the NFIB small business survey. In the May survey, the share of respondents expecting an improvement in business conditions over the next six months fell to a series low (a net -54%), while the overall optimism index moderated to 93.1, the lowest since the first wave of Covid-19 in April 2020. A series-high net 72% of survey respondents reported having raised prices while more than half reported having vacancies that they were unable to full, and almost one quarter on net reported a decline in earnings. With increased recession-talk from all quarters – indeed Richmond Fed President Thomas Barkin is scheduled today to discuss specifically the “recession question” – small-business pessimism is likely to have increased further in June.