Used vehicles lift U.S. consumer prices, but inflation slowing - Reuters News

• Consumer price index increases 0.2% in September
• CPI rises 1.4% year-on-year
• Core CPI gains 0.2%; increases 1.7% year-on-year

By Lucia Mutikani

WASHINGTON, Oct 13 (Reuters) - U.S. consumer prices increased for a fourth straight month in September, with the cost of cars and trucks rising by the most since 1969, though inflation is slowing amid labor market slack as the economy gradually recovers from the COVID-19 recession.

While the benign report from the Labor Department on Tuesday will have no direct impact on monetary policy, it should allow the Federal Reserve to keep interest rates near zero for a while and continue with massive cash infusions as it nurses the economy back to health.

The U.S. central bank is now more concerned about the labor market and has embraced flexible average inflation targeting, which in theory could see policymakers tolerate price increases above its 2% target for a period of perhaps several years to offset years in which inflation was lodged below its goal.

At least 25.5 million people are on unemployment benefits.

The consumer price index rose 0.2% last month after gaining 0.4% in August. The CPI advanced 0.6% in both June and July after falling in the prior three months as business closures to slow the spread of the coronavirus weighed on demand.

A 6.7% jump in the prices of used cars and trucks accounted for most of the increase in the CPI last month. That was the biggest gain since February 1969 and followed a 5.4% advance in August. There were also increases in the costs of new vehicles and recreation. But prices for motor vehicle insurance, airline fares and apparel fell.

In the 12 months through September, the CPI increased 1.4% after rising 1.3% in August. Economists polled by Reuters had forecast the CPI climbing 0.2% in September and rising 1.4% year-on-year.

Excluding the volatile food and energy components, the CPI rose 0.2% last month after increasing 0.4% in August. In the 12 months through September, the core CPI gained 1.7%, matching August's increase.

The Fed's preferred inflation measure, the core personal consumption expenditures (PCE) price index rose 1.6% in the 12 months through August. September's core PCE price index data is scheduled to be released at the end of this month.

U.S. financial markets were little moved by the CPI data.

 

RENTS MUTED

Last month, gasoline prices edged up 0.1% after rising 2.0% in August. Food prices were unchanged after nudging up 0.1% in August. The cost of food consumed at home fell 0.4%, declining for a third straight month.

Housing inflation was muted last month as high unemployment makes it harder for landlords to raise rents. The pandemic has also fueled a migration to suburbs and other low-density areas from urban centers, which over time could result in higher vacancy rates for apartments and restrain rent growth.

Owners' equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, ticked up 0.1% after a similar gain in August.

The cost of recreation rose 0.2% last month after rebounding 0.7% in August. Apparel prices decreased 0.5% after rising for three consecutive months.

The cost of motor vehicle insurance declined 3.5% and prices of airline fares dropped 2.0%. Healthcare costs were unchanged after gaining 0.1% in August.

Education costs fell 0.3% after dropping by the same margin in August, which was the first decline since the series started in 1993. Many schools and universities have shifted to online classes because of the pandemic.

IMF sees less severe global contraction but worsening outlook for many emerging markets - Reuters News

WASHINGTON, Oct 13 (Reuters) - The International Monetary Fund on Tuesday said forecasts for the global economy were "somewhat less dire" as wealthy countries and China rebounded more quickly than expected from coronavirus lockdowns but warned that the outlook was worsening for many emerging markets.

The IMF forecast a 2020 global contraction of 4.4% in its latest World Economic Outlook, an improvement over a 5.2% contraction predicted in June, when business closures reached their peak. It is still the worst economic crisis since the 1930s Great Depression, the Fund said.

The global economy will return to growth of 5.2% in 2021, the IMF said, but the rebound will be slightly weaker than forecast in June, partly due to the extreme difficulties for many emerging markets and slowing reopening momentum as the virus continues to spread.

The forecasts reflect revised foreign exchange weightings for purchasing power parity that slightly increase the influence of advanced economies on global output.

IMF chief economist Gita Gopinath said some $12 trillion in fiscal support and unprecedented monetary easing from governments and central banks helped to limit the damage, but employment remains well below pre-pandemic levels, with low-income workers, youth and women hardest hit.

"The poor are getting poorer with close to 90 million people expected to fall into extreme deprivation this year," Gopinath said in a blog posting. "The ascent out of this calamity is likely to be long, uneven, and highly uncertain. It is essential that fiscal and monetary policy support are not prematurely withdrawn."

The IMF said that the United States will see a 4.3% contraction in GDP during 2020, considerably less severe than the 8% contraction forecast in June.

But the U.S. rebound in 2021 will be somewhat smaller at 3.1% - a forecast that assumes no additional federal aid beyond around $3 trillion approved by Congress in March. (Full Story)

The euro zone's economy will shrink by 8.3% in 2020, an improvement from a 10.2% contraction predicted in June, but there is wide divergence within the group. Export powerhouse Germany will see a contraction of 6.0% in 2020, while Spain's economy, more dependent on tourism, will contract 12.8%. The Eurozone will resume growth of 5.2% in 2021, the IMF said.

China, which saw a strong early reopening and rebound from the pandemic, will be the only economy to show positive growth in 2020, of 1.9% - nearly double the rate predicted in June - and reach 8.2% growth in 2021, its highest rate in nearly a decade, the IMF said.

China had reopened most of its economy by April and has seen strong demand for exports of its medical supplies and technology products needed to aid remote working, the IMF said.

But emerging markets other than China will see a 2020 contraction of 5.7%, worse than the 5.0% predicted in June. The IMF said the virus was continuing to spread in large countries including India and Indonesia, and these economies are far more dependent on hard-hit sectors including tourism and commodities as well as on remittances and other sources of external finance.

The IMF also warned that economic 'scarring' from job loss, bankruptcies, debt problems and lost schooling will hold back medium-term global growth after 2021 to about 3.5%, with a cumulative loss in output of up to $28 trillion from 2020 to 2025 compared to pre-pandemic growth paths.

China's imports, exports surge as global economy reopens - Reuters News

• Exports extend recovery for fourth month
• Imports rise much faster than expected
• Trade balance $37 bln vs $58.0 bln forecast

By Gabriel Crossley and Stella Qiu

BEIJING, Oct 13 (Reuters) - China's imports grew at their fastest pace this year in September, while exports extended strong gains as more trading partners lifted coronavirus restrictions in a further boost to the world's second-biggest economy.

Exports in September rose 9.9% from a year earlier, customs data showed on Tuesday, broadly in line with analysts' expectations and up from a solid 9.5% increase in August.

The strong trade performance suggests Chinese exporters are making a brisk recovery from the pandemic's hit to overseas orders.

As the global economy restarts, Chinese firms are rushing to grab market share as their rivals grapple with reduced manufacturing capacity.

"The big picture is that outbound shipments remain strong, with easing demand for COVID-19 related goods such as face masks being mostly offset by a recovery in broader demand for Chinese-made consumer goods," Capital Economics Senior China Economist Julian Evans-Pritchard said.

"A jump in imports suggests that domestic investment spending remains strong."

China's factory activity has also picked up as international trading gradually resumes. (Full Story)

But some analysts warn exports could peak soon as the demand for Chinese-made protective gear recedes and the base effect of this year's massive declines wears off.

Imports surged 13.2% in September, returning to growth from a fall of 2.1% in August and much stronger than expectations for a 0.3% increase. The import strength was broad based for almost all of China's main trading partners. (Full Story)

Imports from Taiwan surged 35.8% in September from a year ago, while purchases from the United States rose 24.7% on-year. Imports from Australia, however, fell 9.5%.

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RECOVERY AT HOME

Wang Jun, chief economist at Zhongyuan Bank, said the data showed government support for the economy has kicked in as the epidemic comes under control.

"This has boosted domestic demand, especially investment-led demand, which buoyed imports," Wang said, adding that the yuan's recent appreciation was positive for imports and people's spending power.

The Chinese yuan CNY=CFXS rose to a 17-month high against the dollar on Friday. (Full Story)

The rise in imports pushed the trade surplus for September down to $37 billion, compared with $58.93 billion in August and lower than an expected $58.00 billion.

Across products, China bought more soybeans, grains, semiconductors, copper and steel products in September, customs data showed. Analysts expect imports to stay on an improving trend, underpinned by strengthening domestic demand.

Zhang Jun, chief economist at Morgan Stanley Huaxin Securities, said higher purchases of U.S. agricultural and energy products as China implemented the Phase 1 U.S.-China trade deal, and the resumption of logistics services in the United States and Europe contributed to China's import strength. (Full Story)

Top U.S. and Chinese trade officials reaffirmed their commitment to a Phase 1 trade deal in a telephone call in August. (Full Story)

China's trade surplus with the United States narrowed to $30.75 billion in September from $34.24 billion in August.

German ZEW investor morale falls on virus, Brexit, US election worries - Reuters News

• Sentiment falls more than expected
• ZEW says euphoria of August and September has evaporated

BERLIN, Oct 13 (Reuters) - German investor sentiment fell by more than expected in October as a triple whammy of coronavirus, Brexit and U.S. election angst increased uncertainty about the outlook for Europe's largest economy, the ZEW economic research institute said.

The survey of investors' economic sentiment fell to 56.1 from 77.4 points the previous month, ZEW said on Tuesday. A Reuters poll had pointed to a fall to 73.0.

"The recent sharp rise in the number of COVID-19 cases has increased uncertainty about future economic development, as has the prospect of the UK leaving the EU without a trade deal," ZEW President Achim Wambach said in a statement.

"The current situation in the run-up to the presidential election in the United States further fuels uncertainty."

A separate gauge of current conditions rose to -59.5 from -66.2 points the previous month. That compared with a consensus forecast of -60.0 points.

The German economy contracted by 9.7% in the second quarter as household spending, company investments and trade collapsed at the height of the pandemic.

An easing of lockdown measures, coupled with an unprecedented array of rescue and stimulus packages, led to a robust recovery in the third quarter, but a spike in new coronavirus cases has caused concern activity could slow again.

The ZEW sentiment index last fell in July.

Wambach said "the great euphoria witnessed in August and September seems to have evaporated."

Chancellor Angela Merkel said she and mayors from Germany's 11 largest cities agreed on Friday to adopt stricter anti-coronavirus measures if infections exceed a threshold of 50 cases per 100,000 population in a week. (Full Story)

The Ifo institute expects 6.6% output growth in the third quarter, then a slowing to 2.8% in the fourth quarter.

UK jobless rate hits 4.5% as work-protection plan nears end - Reuters News

• Jobless rate hits 4.5% vs Reuters poll forecast 4.3%
• Employment falls by 153,000, more than expected
• Revisions show big falls in employment in previous months
• Record rise in redundancies
• Vacancies show record jump, too
• UK government is scaling back its jobs plan

By William Schomberg and Andy Bruce

LONDON, Oct 13 (Reuters) - Britain's unemployment rate rose by more than expected in the three months to August, before the end of the government's broad coronavirus job-protection plan and the imposition of new restrictions to slow the pandemic.

The jobless rate hit 4.5%, its highest in more than three years and above the forecast of 4.3% in a Reuters poll of economists.

The number of people counted as unemployed rose by the most since 2009, during the global financial crisis, and the Office for National Statistics revised up its estimate of job losses earlier this year, raising its estimate of unemployment in the three months to July to 4.3%.

"Since the start of the pandemic there has been a sharp increase in those out of work and job hunting but more people telling us they are not actively looking for work," Jonathan Athow, the ONS's deputy national statistician, said.

"There has also been a stark rise in the number of people who have recently been made redundant."

The ONS data showed redundancies jumped by a record 114,000 on the quarter to 227,000, their highest level since 2009.

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The number of people in employment fell by 153,000, much higher than a median forecast for a fall of 30,000 in the Reuters poll.

Finance minister Rishi Sunak reiterated on Tuesday that his priority remained to slow the rising job losses. However, he is replacing a 50 billion-pound wage-subsidy scheme, which expires at the end of this month, with a less generous programme.

"I've been honest with people from the start that we would unfortunately not be able to save every job," he said.

Prime Minister Boris Johnson introduced a new system of restrictions for England on Monday that will hit the hospitality industry, and a minister said the government may have to go further. (Full Story)

"With economic support falling just as lockdown restrictions increase across the country, we should prepare for a major increase in unemployment over the coming months," said Nye Cominetti, an economist at the Resolution Foundation think tank.

The Confederation of British Industry said ramping up testing was key to securing an economic recovery.

There were some positive signs in Tuesday's data.

Tax office figures showed the number of staff on company payrolls rose by a monthly 20,000 in September, slightly reducing the total number of job losses by that measure since March to 673,000.

The number of job vacancies rose by the most on record in the three months to September, although the total remained down 40% compared with a year earlier.

The Bank of England has forecast that the unemployment rate will hit 7.5% by the end of the year. But BoE Governor Andrew Bailey on Monday repeated his warning that the recovery could prove weaker than the central bank's forecasts.

Britain's economy grew in August at its slowest pace since May as its recovery from the lockdown slowed.

Scores of companies have announced plans to cut jobs since the pandemic struck. Last week the owner of clothing retailers Edinburgh Woollen Mills, Peacock's and Jaeger put 24,000 jobs at risk by saying it was set for administration.