Economic Roundup: US Output Drops, but UK Inflation Rises, Eurozone Avoids Deflation

Economic Roundup: US Output Drops, but UK Inflation Rises, Eurozone Avoids Deflation

By Chibuike Oguh

 

American industrial production fell in May as a stronger dollar and lower oil prices affected the industrial sector.

Analysts were expecting higher consumer prices to lift industrial output, but production fell 0.2 percent month-on-month in May, according to figures released by the Federal Reserve.

Photo credits: Business Insider
Photo credits: Business Insider

Industrial production has been weak since December: it remained flat in February and March, then fell by 0.5 percent in April and 0.2 percent in May.

“Signs of spring remain largely absent in the industrial sector. “This suggests lingering challenges with the stronger dollar and drop in energy prices,” Tom Quilan and Sarah House of Wells Fargo Securities, said.

Decreased activities in the manufacturing and mining sectors dragged down overall industrial production.

The manufacturing sector, which accounts for 72 percent of industrial production and 12 percent of the U.S. economy, fell 0.2 percent month-on-month in May, dragged down by non-durable goods such as food and petroleum products. Motor vehicle and parts production, which rose by 1.7 percent month-on-month, failed to lift overall manufacturing output.

The mining sector – which includes the oil and gas sector – fell 0.3 percent month-on-month, dragged down by cutbacks in exploration and drilling, which fell 7.8 percent month-on-month in May after falling by 14.5 percent month-on-month in April. Oil and gas extraction, which rose by 0.5 percent month-on-month, failed to lift overall mining output in May.

Despite the decline in industrial production, U.S. consumer prices recorded their biggest gain in more over two years.

The consumer price index grew by 0.4 percent month-on-month in May following a spike in gasoline prices ahead of the summer driving season.

Analysts were expecting the gradual pickup in inflation since the beginning of the year to push consumer prices up by 0.6 percent month-on-month, prompting the Federal Reserve to raise interest rates rapidly.

“The slow pace of inflation will justify a more gradual pace of tightening by the Fed. It’s playing into their hands,” said Millan Mulraine, deputy head of U.S. research and strategy at TD Securities in New York.

The gasoline price index rose sharply by 10.4 percent month-on-month, but food price index was unchanged in May, according to figures released by the U.S. Bureau of Labour Statistics.

Core consumer prices, excluding food and energy prices, rose marginally by 0.1 percent month-on-month in May, the smallest increase since December. In the past 12 months ending in May, core consumer prices rose 1.7 percent, dropping slightly from the 1.8-percent increase in the past 12 months ending in April.

The overall consumer price index was unchanged for the 12 months ending in May after showing a 0.2-percent decline for the 12 months ending April, the U.S. Labour department reported.

Consumer prices in the United Kingdom rose in May, ending a one-month encounter with negative inflation.

The UK’s Consumer price index rose 0.1 percent in May up from a deflation of -0.1 percent recorded in April, according to figures from Office for National Statistics (ONS).

The last time the UK’s economy encountered deflation was in 1960.

The biggest contributor to the rise in inflation came from the transport sector, mainly higher airfares.

Photo credits: thedrinkbusiness.com
Photo credits: thedrinkbusiness.com

Falling airfares in April, owing to the early timing of Easter this year, had turned inflation negative. But the rise in airfares in May helped inflation to become positive, the ONS said.

Other significant contributors to the rise in inflation are food and motor fuels. Food prices fell slightly by 0.1 percent month-on-month in May this year compared with a decline of 1.1 percent recorded last year. Fuel prices rose by 2.5 pence month-on-month in May this year compared with 0.4 pence recorded last year while diesel prices rose by 1.5 pence month-on-month in May this year compared with 0.3 percent last year.

“The falls in food and fuel costs over the last year have eased this month, helping to push inflation up,” Philip Gooding, of the ONS, said.

Core inflation, which excludes food and energy prices, rose to 0.9 percent in May from 0.8 percent in April.

With the current low inflation rate, the Bank of England may be in no hurry to raise interest rates from its record low of 0.5 percent.

The growth of UK retail sales may have cooled in May after recording stronger growth in the previous month.

The Office of National Statistics (ONS) said that retail sales rose by 0.2 percent in May compared with 0.9 percent in April.

Analysts were expecting retail sales to be flat in May after the ONS revised figures for April to 0.9 percent down from 1.2 percent.

However, retail sales grew by 4.6 percent in May 2015 compared with May 2014, making it the 26th consecutive month of year-on-year growth since May 2008.

Clothing sales fell 1.6 percent month-on-month in May, the biggest fall since September 2014. Food sales, however, rose 0.6 percent month-on-month in May, the biggest increase since December.

The UK’s labour market seems to gathering momentum as UK unemployment falls and wages rise, according to latest figures from the Office of National Statistics.

The ONS said 43,000 people found work between February and April 2015, pushing the number of unemployed down to 1.81 million. But the jobless held steady at 5.5 percent, the lowest rate since August 2008.

Photo credits: Galleryhip.com
Photo credits: Galleryhip.com

Total wages – including and excluding bonuses – grew by 2.7 percent between February and April 2015, the strongest since August 2011.

The figures for wage growth exceed analysts’ expectations.

“These data are consistent with diminishing slack in the labour market,” analysts at Daiwa Capital Markets stated. “Certainly, a sustained increase in wage growth in the absence of an improvement in productivity will add to the case for higher interest rates sooner.”

Fears of deflation in the euro zone economy seem to be overestimated as Euro area inflation rises.

Eurostat said that euro area inflation rose to 0.3 percent in May 2015, up from 0.0 percent in April, but lower than 0.5 percent recorded in May 2014.

Core inflation, which excludes food and energy, rose 0.1 percent in May 2015, up from 0.0 percent in April. Core inflation rose to 0.9 percent year-on-year, the highest increase since August 2014.