Inflation | Buzz and Branding

China PMI foreshadows slower growth

The official purchasing managers’ index (PMI) of China fell to a five-month low of 52.9 in January to mis the median forecast of 53.5 in a Reuters’ poll, according to the China Federation of Logistics and Purchasing.

China’s factories slowed a touch in January due to the impact of monetary tightening but input prices went high quickly to keep pressure on the government for tacking inflation despite easing growth.

From in.finance.yahoo.com:

But analysts cautioned against reading too much into survey results for a single month, particularly as they were likely distorted by a closure of factories and a spike in consumption late in January ahead of China’s Lunar New Year.

Underlining that warning, a separate PMI sponsored by HSBC pointed in the exact opposite direction from the official version, with its headline index edging up in January while its measure of input price inflation eased a touch.

Nevertheless, taken together, the two surveys painted a picture of sticky inflation and a moderate slowdown in the world’s second-largest economy after 10.3 percent growth last year.

“This indicates that the economic recovery trend is not yet clear, and we may see economic growth slow down a bit,” Zhang Liqun, an economist in the Development Research Centre, a think-tank under the cabinet.

The input price sub-index in the official PMI rebounded to 69.3 in January from 66.7 a month earlier, though was still below a peak of 73.5 hit in November.

Brian Jackson, an economist with Royal Bank of Canada in Hong Kong, said, “This is the data point that will likely be of most interest to policy makers. This provides a further reason to think that headline inflation is likely to pick up in the next few months.”

Inflation will drop to 1.5 percent as cuts hit spending

Adam Posen, external member of the Monetary Policy Committee at the Bank of England, recently said inflation would tumble to 1.5% by the middle of next year.

This will be because of George Osborne’s austerity drive and the underlying weakness of the economy stifle consumer spending, according to the leading dove of the Bank of England.

From Guardian.co.uk:

In an interview with the Guardian, Adam Posen admitted he had sleepless nights over his call for more money to be pumped into the economy and said he would not seek re-election to Threadneedle Street’s monetary policy committee if his view turned out to be wrong.

Posen said: “If I have made the wrong call, not only will I switch my vote, I would not pursue a second term. They should have somebody who gets it right and not me. I am accountable for my performance. I’m holding my nerve because it is the right thing to do.”

The American academic said he would be profoundly affected if it was proved that he had erred in voting repeatedly for bank rate to be pegged at 0.5% and for more money to be pumped into the economy through quantitative easing. “It would not just be terrible that I had messed up for other people but it is also my fundamental world view that I have been testing.

“I would take it deeply and personally, which is why I have laid awake at night thinking about it.”

Posen also said the so-called “core inflation” that strips out the effects of fuel, food costs, and taxes such as VAT, did not suggest that the economy was overheating.

Companies hike salaries by 40 percent

According to experts, companies have raised salaries to as high as 40 per cent especially at the junior levels with day-to-day living turning costlier.

Inflation has been at high levels due to soaring prices of essential commodities in recent times.

From in.news.yahoo.com:

Last month, inflation climbed to 8.31 per cent as compared to 8.23 per cent in January. Food inflation stood at 9.42 per cent in the week ended March 5.

As such attrition rates along with inflation had prompted companies to enhance the overall basic salary structures to “15-20 per cent at all the employment levels”, Gi Staffing Services’ Branch Head (Mumbai) Swapnil Jain said.

India is expected to see one of the highest salary hikes this year at 12.9 per cent, according to global HR consultancy Aon Hewitt. Last year, actual increase was around 11.7 per cent.

“Inflation decreases the propensity to save; therefore the organisations try and match up to the salary packages of the employees to the same extent,” Elixir Web Solutions’ HR Manager Geeta Verma said.

Elixir is a leading recruitment process outsourcing firm. “The hike in inflation rates has enabled organisations to provide competitive salaries so that ratio of expenses/savings remains proportionate to the increasing levels of inflation,” Verma noted.

Executive search firm GlobalHunt’s director Sunil Goel told PTI, “Inflation has affected the salary hikes towards the higher side.”

Precious metals to enjoy stellar growth in 2011

A Reuters poll has suggested that precious metals are expected to build on a stellar 2010 this year because risk aversion and persistently low interest rates boost their allure.

A survey of 65 leading analysts, traders and fund managers predicted gold will be averaging $1,450 an ounce this year, well above its record high of $1,430.95 an ounce.

From in.finance.yahoo.com:

Below are a selection of comments from respondents to the survey. All prices are in dollars per ounce.

JAMES STEEL, ANALYST, HSBC

“We believe that gold will continue to attract safe-haven buying from risk-averse investors this year, as European Union sovereign debt concerns persist. The Federal Reserve is likely to continue with its programme of quantitative easing (QE) in

2011 to prevent deflation from taking root, while the pace of economic activity in the emerging world will likely remain strong, igniting inflation fears…The combination of continued QE in the U.S. and rising inflation pressures in the emerging world is a particularly bullish cocktail for gold.”

HOU XINQIANG, ANALYST, JINRUI FUTURES

“Changes in the geopolitical situation will trigger changes in foreign policies and relations between major countries, which may influence gold prices. The economic recovery in the U.S. and the euro zone is another key issue which will drive gold prices.

In addition, market liquidity, which is mainly determined by the shifts and timing of shifts in monetary policies in the euro zone and the U.S., will amplify moves in gold prices.

Most respondents expected gold to average $1,228 an ounce in 2011. Last year the average LBMA gold fixing was $1,225.60 an ounce, according to a similar poll in July.

Falling food prices leads to decline of Tesco

Tesco, the supermarket giant, recently said that sales growth in the United Kingdom almost ground to a halt over the last 3 months as the grocer struggled with plunging food inflation.

It was revealed by the company that like-for-like sales excluding petrol climbed to 1.1 percent in the three months to May 30, which was a mere 0.1 increase after adjusting for the higher VAT rate.

From Guardian.co.uk:

“Although customers in the UK continue to face some uncertainties about their personal finances, we continue to see evidence of a steady consumer recovery,” the firm said.

Chancellor George Osborne is said to be weighing up a potential hike in VAT next week to help tackle the deficit, but McIlwee said the coalition urged caution in managing a fragile UK recovery.

He warned: “If there is an increase in VAT on products it should be in the future rather than now.”

In the UK, Tesco benefited from its World Cup marketing campaign, with sales of some televisions more than doubling as customers upgraded for the tournament.

The firm’s international business has also been helped by the World Cup appearances of four of Tesco’s overseas markets – South Korea, Slovakia, Japan and the USA.

The UK’s number one supermarket is still expecting like-for-like sales growth in the UK of around 3 percent for the full year.