In May, CPI inflation dropped to an annual -1.3% Y/Y, while the consensus was looking for a softer decline (-0.9% Y/Y). On a monthly basis, CPI rose by 0.1% M/M, while an increase by 0.3% M/M was expected. The breakdown shows an increase by 0.8% M/M in transportation due to a rise in gasoline prices (3.1% M/M), but also prices of medical care (0.3% M/M), education (0.3% M/M) and commodities (0.2% M/M) rose. Housing (-0.1% M/M), food & beverages (-0.2% M/M) and apparel (-0.2% M/M) dropped. Although the annual figure is at its lowest level in almost 60 years, fears for deflation eased,as core CPI remains high (1.8% Y/Y from 1.9% Y/Y).
EMU: trade deficit narrows sharply in April
In April, the euro zone trade balance showed a sharper than expected narrowing in the deficit. The trade deficit contracted from a revised 1.8B to 0.3B, while the consensus was looking for a deficit of 1.5B. Looking at the details both seasonally adjusted imports and exports dropped in April, after rising in the previous month. The decline in exports (-1.3% M/M) was however surpassed by a 2.7% M/M drop in imports. The decline in exports was a bit disappointing after two straight improvements, but came not as a surprise as earlier released German data showed a decline by 4.8% M/M in exports.
Other: UK jobless claims surpise on the downside, for the third straight month
In the UK, the employment data came out significantly less bad than expected. In May, jobless claims rose by 39 300; while an increase by 60 000 was expected and the previous figure was downwardly revised from 57 100 to 49 600. The ILO unemployment rate, for April, rose from 7.1% to 7.2%, while the consensus was looking for an outcome of 7.3%. After the massive job loss in February, jobless data came out significantly better than expected in the following three months, which raises expectations that the worst for the UK economy is behind us. Average earnings including bonus rose by 0.8% in April after showing the first drop since the start of the series in 1964.
At its June meeting, the Bank of England’s Monetary Policy Committee decided unanimously to keep rates unchanged at 0.50% and that no change should be made to the scale of asset purchases under the asset purchase programme. The MPC said that, although economic news over the month running up to the decision had been “mostly encouraging”, the increase in confidence in some financial market indicators and surveys remained fragile. In its Minutes, the BoE said that the increase in M4 money growth provided tentative evidence that the asset purchase programme was succeeding in boosting the money holdings of institutional investor, a first stage in the transmission mechanism from asset purchases to the economy. The governor also informed the members that the BoE was planning to consult the market about the introduction of a Secured Commercial Paper Facility and a Supply Chain Finance Facility to support the provision of working capital to companies.
