US inflation slowed in April. The headline inflation came out at 0.2% M/M and 3.9 % Y/Y (from 4.0 % in March). The core reading declined also to 0.1% M/M and 2.3% Y/Y (from 2.4 % in March). A monthly decline in gasoline prices was a factor behind the slowdown, but also the rise in prices in most non-core items was quite moderate in March. This suggests that at least for now there is no strong passing-through of higher oil and commodity prices into the real economy.
EMU: Industrial production slows
In March, euro zone industrial production fell by 0.2% M/M following a 0.3% M/M rise in February. As a result, annual growth slowed from 3.2% Y/Y in February to 2.0% in March. The slowdown was widespread, as only energy output increased. The figures indicate that already at the end of the first quarter, the growth momentum in the euro zone was slowing.
Other: UK labour market weakens
In the UK, the latest labour market report contained some first signs of weakening, as the jobless claims increased for the third month in a row and the number of unemployed people increased by 14K over the quarter. Employment is however still rising and is up 117K over the quarter. Despite current elevated inflation levels and fears that higher inflation expectations will lead to higher wage demands, earnings growth remains subdued. Recent surveys point to a further softening of the UK labour market in the months ahead, which should keep earnings growth in check.
The Bank of England inflation report showed only a very limited scope for further rate cuts. Based on market expectations for rate cuts to 4.5%, inflation would overshoot the target of 2%, while at constant rates the CPI is seen only marginally below 2%. In the coming months, inflation is expected to pick up and may hit 4% requiring the Governor to write a number of letters of explanation. Compared to the February report, the growth profile is also weaker.
