Take Two: US inflation at 40-year high; ECB confirms Q3 end for asset purchases

What do you need to know?

US annual inflation reached its highest since late 1981 in the year to end-March. The Consumer Price Index (CPI) was up 8.5% over the period, after hitting 7.9% a month earlier, as the Ukraine conflict led to further rises in energy prices. The gasoline index rose 18.3% in March and accounted for over half of the monthly increase. Excluding energy, there was some sign of moderation in the monthly numbers, offering hope a peak may have been reached, but the data was still expected to encourage hawkish action from the Federal Reserve at next month’s policy meeting. In the UK, annual inflation reached 7% in March, the highest since 1992.

Around the world

The European Central Bank (ECB) kept interest rates on hold, emphasising that it would “take whatever action is needed” to safeguard financial stability and keep a lid on inflation. It confirmed quantitative easing would end in the third quarter (Q3). Separately, Eurozone banks tightened their lending criteria for businesses in Q1, and are expected to do so further in Q2, as they believe risks have increased, according to the ECB’s latest bank lending survey. Loan demand increased, mainly due to firms’ need for working capital and to finance inventories.

Figure in focus

The Organization of the Petroleum Exporting Countries (OPEC) lowered its forecast for 2022 global oil demand by 480,000 barrels of oil per day, reflecting weaker economic growth and lower demand due to the recent surge in coronavirus cases in China. OPEC now expects global oil demand to average 100.5 million barrels a day this year, reflecting year-on-year growth of 3.67 million barrels a day – less than the 4.15 million it had predicted last month. Oil prices dipped below $100 a barrel as certain oil-producing nations agreed to release more from reserves, but later resumed rising after Russia said its peace talks with Ukraine had stalled. 

Words of wisdom

Soft landing: The goal of any economy experiencing a downturn, normally after a period of strong growth. Economies tend to move through peaks and troughs and it is largely the job of central banks to manage the mechanics of those ups and downs through interest rate policy and the handling of any stimulus. Raise rates too quickly, or withdraw fiscal assistance too readily, and an economy might slump to a hard landing that turns a cyclical downturn into a recession. As central banks wrestle with the aftermath of the pandemic and the shockwaves from Russia’s invasion of Ukraine, that tricky balancing act has been thrust into the spotlight.

What’s coming up

Q1 GDP growth data for China is reported Monday, as is its unemployment rate for March. On Tuesday the minutes from the latest Reserve Bank of Australia monetary policy are published, while on Wednesday Canada’s inflation numbers for March land – its annual rate reached 5.7% in February. Thursday sees the Eurozone’s March inflation numbers and a flash Consumer Confidence index for the bloc released. Flash S&P Global Composite Purchasing Managers’ Indices for Australia, the Eurozone, the UK and US are published Friday.