US consumer price inflation (CPI) for April accelerated at its fastest pace since 2008, jumping to +4.2% year-on-year (YoY) – considerably higher than the consensus forecast of +3.6%. On a month-on-month (MoM) basis, the CPI also overshot expectations with a +0.8% rise. There were particularly high rates of inflation in certain categories linked to domestic travel: hotel prices rose +8%, used car prices increased +10%, and gasoline prices rose +23%.
Supply chain congestion and pent-up demand converting into actual spending is driving these higher consumer prices. Whether or not this will translate into sustainably higher inflation, or is simply ‘transitory’, to quote the Federal Reserve, will be an important driver of market sentiment throughout 2021. Federal Reserve officials have been quick to comment on inflation in light of the higher numbers, hoping to curb concerns that this inflationary spike could lead to tightening of monetary policy (higher interest rates).
A private gauge of activity in China’s service sector soared to its highest level so far in 2021, with tourist travel and some consumer spending segments now exceeding their pre-pandemic levels. Goods exports rose +32.3% in April, YoY, beating estimates, while imports rose +43.1%, again beating expectations and a reflection of the so-far undiminished global appetite to trade with China. These new data releases continue to indicate that China’s economy is ahead of the pack in its recovery phase.
While there is still nothing spectacular to report from Europe, the region does now look as though it is gradually seeing an improvement in economic outlook. On May 12th, the European Commission said it expects to see GDP growth for the Eurozone of +4.3%, then +4.4% in 2022. This growth upgrade from previous predictions is due to updated forecasts including the impact of the €800 billion EU Economic Relaunch package, which should begin paying out in the second half of 2021. Europe’s vaccine program is also starting to accelerate and should translate into stronger activity in the summer. Europe, finally, appears to be on the road to a sustained economic recovery in 2021 and 2022.
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