In October, both US housing starts and permits dropped for the second consecutive month, while the consensus was looking for a slight increase. Housing starts fell by a sharp 10.6% M/M from an upwardly revised 592 000 to 529 000, while a figure of 600 000 was expected. The decline was led by multi-family starts (-36.4% M/M), but also the less volatile single family starts dropped (-6.8% M/M). Building permits dropped by 4.0% M/M in October, from a revised 575 000 to 552 000, while an outcome of 580 000 was forecasted. Also here, the worsening was led by the multifamily sub-index. Housing under construction dropped by 3.4% M/M, while housing completed rose by 1.9% M/M. The disappointing housing data might be due to the weak labour market conditions and the expiration of the tax credit programme that was coming closer. Nevertheless, the renewal of the newhomebuyer tax credit early this month might support housing market activity in the future.
US CPI inflation rose from -1.3% Y/Y to -0.2% Y/Y in October, slightly above the market expectations. On a monthly basis, inflation rose by 0.3% M/M due to significant price increases in energy (1.5% M/M), vehicles (1.7% M/M), gasoline (1.6% M/M) and commodities (0.5% M/M). Prices of recreation and apparel fell in October. Core CPI, excluding food and energy, rose from 1.5% Y/Y to 1.7% Y/Y, while the consensus was looking for a figure of 1.6% Y/Y. In the coming months, headline CPI will show substantial increases and return to positive territory, due to higher commodity prices and base effects. However, the unexpected rise in core CPI should ease fears of deflation.
Other: BoE minutes show three-way split
On the 5th of November, the Bank of England Monetary Policy Committee decided to keep rates unchanged, but to continue with its programme of asset purchases and increased its size by £25B to a total amount of £200B. The Minutes revealed that there was a three-way split to extend the quantitative easing programme by £25B, as we had expected. Spencer Dale vote for no expansion as he stressed the potential risks of such a policy. David Miles, on the contrary, favoured an expansion of £40B in order to provide greater insurance against the downside risks to growth and inflation arising from constrained credit supply. The Minutes also showed that the MPC discussed changing the remuneration rate on commercial bank reserves, but the Committee thought such a change was unlikely to have a significant effect on the demand and inflation outlook, but agreed that they would retain it as a policy option.
In November, the CBI industrial trends survey showed a slight increase in the number of total orders (-45 from -51), but the index remains still very weak. Also export orders (-37 from -46) and finished stocks (20 from 10) improved, while volume of output (expectation for the next three months) stayed unchanged at 4. Average prices (expectation for the next three months) dropped from -5 to -7
