The February CPI report was on the soft side, and this was mainly attributable to weakness in the core goods sub-category. Falling import prices suggest that core goods inflation could soon slip back into deflation. A strong dollar makes imported products less expensive, all else being equal, so the currency move is mitigating a substantial portion of the tariff price tag. Meanwhile, imported goods, which are not subject to tariffs, benefit even more directly from a price reduction (in dollar terms)
EUROPEAN INDUSRIAL PRODUCTION
Industry gave the euro-area economy a surprisingly strong lift at the start of 2019 after months of disappointing data cast clouds over the region’s outlook. A 1.4 percent jump in industrial output — higher than the 1 percent gain forecast — was driven by a rebound in some of the bloc’s largest economies, including France, Italy and Spain
China’s economic slowdown deepened in the first two months of the year, pushing unemployment sharply higher and intensifying pressure on the government’s calibrated stimulus strategy. With industrial output having its worst start to a year since 2009 and retail sales expanding at the slowest pace since 2012, the unemployment rate jumped to 5.3 percent in February from 4.9 percent in December, the highest level in two years. On the upside, fixed-asset investment accelerated and property investment jumped.
Stabilization in investment reflects policy effects. Investment by state-owned entities started to pick up, with growth accelerating to 5.5% from 1.9% from December.
Infrastructure spending growth rose to 4.3% from the previous reading of 3.8%. Investment in railways and highways saw notable pick-ups. Growth in private investment, however, slowed to 7.5% from 8.7%
Weakening global growth is making life tougher for the Bank of Japan, as the downgrade in its economic assessment acknowledges. There’s pressure from policy board member Goushi Kataoka to increase stimulus. The BOJ kept its short-term rate at -0.1% and its target for the 10-year Japanese government bond yield at around 0%. The BOJ also maintained its guideline on JGB purchases – an annual pace of accumulation of about 80 trillion yen in a flexible manner.
The BOJ cut its assessment of exports and production, saying they are showing “some weakness recently.”
Recent weakness in exports has been centered on shipments of capital goods and parts to Asia, particularly to China