Interest Rate Gate-Keepers vs The Real World

 

The interest rate gate-keepers:

San Fran Fed President Mary Daly on Tuesday pushed back against critics warning low interest rates and government spending could overheat the U.S. economy and spark high inflation. “I am not thinking that we have unwanted inflation around the corner,” Daly said at a virtual event held by the University of San Francisco. “I don’t think that’s a risk we should think about right now.”

 

St. Louis Fed president James Bullard said Tuesday that he doesn’t see a bubble in asset prices and doubts the central bank needs to start tightening policy anytime soon. Bullard told CNBC that there aren’t clear signs of excesses though he conceded that stocks are “highly valued on the whole”. Asked if he thinks the Fed should start tapering the pace of its asset purchases, Bullard said, “Not really. I think we’re in good shape for today. Why don’t we just wait and see

Philadelphia Fed President Patrick Harker told CNBC last  Thursday that inflation only will be a problem if it shows a sharp acceleration, and that the central bank won’t have to worry about inflation getting in its way anytime soon.

Jay Powell, speaking at an event last  Wednesday, is that “there could be upward pressure on prices” as the economy reopens, but that any such pressure is likely to be “neither large nor sustained”.

Cleveland Fed President Mester said US policy will stay accommodative for a “very long time” because the economy is far from goals for maximum employment and price stability. She sees no imminent pullback in central bank support.

Richmond Fed President Barkin says he expects “short-term price volatility” but sees deflationary as well as inflationary risks in the future

Treasury Secretary Janet Yellen said that if inflation ticks up “we have the tools to deal with that risk.”

 

Chicago Fed President Evans says current inflation maybe transient and should be looked past. “The strong pickup in economic activity projected for this year should generate a temporary boost to inflation; but whether this becomes embedded into inflation expectations and produces a more sustained increase in underlying inflation is an open question”

 

Vs the real world:

Kraft Heinz and Conagra yesterday said they may choose to raise prices this year. “We have inflation, we are seeing inflation, we are concerned about inflation. We have to mitigate that inflation, or at least part of it, with hedges and with efficiencies in the factories,”

Microchip comments regarding low inventories in the distribution channel and supply chain issues, this comment stood out: “We have also experienced increases in material and sub-contracted manufacturing costs and have had to take steps to secure capacity for calendar year 2021 as well as adjust our pricing accordingly.”

Greif (industrial packaging), will implement price increases on certain paperboard and containerboard products. Price increases are in response to robust demand as well as “continued cost pressures in production and transportation”.

Berry Global “We have seen significant cost increases in our primary raw material, resin, along with some modest inflation in other raw material and other costs over the past several months including anticipated February increases

Eaton: “with respect to supply chain, yes, we’re absolutely seeing it (input cost pressures). We’re seeing inflationary pressures in copper. We’re seeing it in some steel. We’re seeing some availability and some pressures also on microprocessors and the like around the company.”

Coloplast: “cost pressure from wage inflation and labour shortages”.

Escorts Ltd “inflation is going rampant”.

Atkore: “working to quickly absorb and pass-through our higher input costs.

NXP Semiconductors: “we are seeing price increases, hopefully pass them on (to customers) pretty quickly”.

Graphic Packaging: “input cost inflation of commodities, labour and benefits.”

Electrolux: “For 2021 we estimate a headwind, primarily due to raw material costs” Chaser: “We expect to offset the raw material headwind with price increases”.

ON Semi: “there are price increases that we have incurred from our supply chain, and we are working with customers to pass those on down the supply chain from where we are.”

UPL: “building blocks of the chemical industry like methanol, acetic acid, ethanol have seen quite a sharp increase in price”. “We are increasing prices”.

Otis World Wide: “headwinds from labour inflation and commodities”.

Badger Meter: look to “offset commodity inflation with price”

Church & Dwight “incremental commodity volatility (expected)”

Polymetal: “industry-wide inflation driven just by the upcycle in the commodity industry.”

BE Grp: “The shortage (of steel) has led to rapid and large price increases in steel as well as raw material by the end of 2020 and the beginning of 2021”.

Finolex “sharp rise in prices”.

Arcelik “we (white goods) are following up the semiconductor shortage. A lot of raw materials are short and prices have increased.”

Holtek Semi are expected to initiate price increases (15%) to reflect rising manufacturing costs, according to industry sources. (DigiTimes).

Goodyear saw cost pressure pushing capex higher: Guides initial FY21 capex $850M v $647mln YoY, raw materials $125-175mln YoY

And the recent macro data:

Within yesterday’s Empire Manf big print (12.1 vs est 6, prior 3.5) the Prices Paid component hit 57.8 (from 4.1 low print in May 2020), which is the highest level since 2011 as “as a growing number of factories in the state reported paying more for materials and charging higher prices.”

China’s producer prices gained for the first time in a year in Jan as commodity prices climbed following strong manufacturing growth.

China PMI: “stock shortages and shipping delays led to a further marked deterioration in supplier performance and added further upwards pressure on costs.”

French PMI: “cost burdens rose at the sharpest rate for nearly three years”

Spain PMI “price pressures strengthened amid widespread reports of raw material shortages, increased freight costs and higher prices for key inputs such as steel. Overall input prices rose at the sharpest rate for three years”.

Italy PMI: “Disruptions to supply chains intensified, however, with lead times for inputs lengthening to the greatest extent since May, pushing the rate of input price inflation to a near four-year high”

Dutch PMI: “cost burdens rose noticeably during January, with the rate of inflation the most marked for over two years. Raw material shortages, higher transportation fees and supplier price hikes were the main drivers of inflation, according to panellists. Factory gate charges also rose, with the rate of charge inflation solid, despite easing since December”.

Russian PMI: “manufacturers registered another marked monthly increase in input costs at the start of 2021. Although the rate of cost inflation eased from that seen in December, it was among the sharpest for six years”

German PMI “There was an associated acceleration in the rate of input price inflation faced by German manufacturers to the highest since July 2018. Increased costs were largely absorbed by goods producers, however, with average factory charges rising only modestly and at a slower rate than in December.”

 

 

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