Lots of Global Economic News this Morning

A flood of news this morning, highlighted by inflation figures in China and the U.S., along with retail sales domestically.

China
A few months ago, investors were wringing their hands over Chinese inflation*.  Overnight, China reported an even higher inflation figure yet investors applauded it.  Only in markets.  In theory this means China needs to continue to tighten, which would be a tax on growth, but the market doesn't seem to care today.  China's central bank immediately hiked bank reserve ratios after the news.  Industrial production was a slight beat.

*while I will report what the Chinese say inflation is, the reality of the number being accurate is low as it appears very understated compared to "reported GDP".

Via AP:

• China's inflation rose to its highest level in nearly three years in May, thanks largely to stubbornly high food prices, adding to economic and social strains that have fanned recent protests.
• The 5.5 percent rise in the consumer price index reported Tuesday was in line with expectations but higher than April's 5.3 percent and March's 32-month high of 5.4 percent. The National Statistics Bureau said the main factor was an 11.7 percent jump in food prices.
• The spate of street demonstrations and bombings, from Inner Mongolia in the north all the way to Guangdong in the south, has highlighted the precarious balance the communist leadership is striving to maintain while keeping the world's second largest economy growing at a stable pace.  Surging prices for food and other basic necessities have added to the frustrations over inequality, abuse of power and suppression of legitimate grievances that drove recent turbulence.
• On Tuesday, the central bank lifted the ratio of funds banks must set aside as reserves by a half point in its sixth such attempt this year to contain inflation. The latest increase, to a record 21.5 percent of deposits, will take effect June 20.
• China's industrial output rose 13.3 percent in May, the statistics bureau reported, while investments in construction, factory equipment and other "fixed assets" rose 25.8 percent in January-May over a year earlier. Investment in property jumped a whopping 34.6 percent.

U.K. 
Inflation held firm at the high level of 4.5%.

Via BBC:

• UK Consumer Prices Index inflation held steady at 4.5% in May, new data shows. It means the CPI rate has now overshot the Bank of England's 2% target for 34 of the past 40 months. 
• The Retail Prices Index (RPI) measure of inflation - which includes mortgage interest payments - was also unchanged at 5.2%,  Fuel and food prices continued to be the main contributors, with both components up 1.3% from April.  
• It follows a rise to 4.5% in April - the highest inflation rate since October 2008 - from 4% in March.  
• Core inflation fell back to 3.3% from the record high of 3.7% set in April.

India
Inflation higher than expected

Via BBC

• Indian inflation rose faster than expected in May, raising expectations of a further interest rate rise.  The wholesale price index rose by an annual rate of 9.06%, up from the April figure of 8.66%.  The rise was driven partly by an increase in the price of manufactured goods, with the rate of food and fuel inflation both falling. 
• Analysts had expected a smaller rise in inflation as some global fuel and commodity costs fell in May. "The big surprise is mainly because of the sharp increase in manufacturing prices," said Nomura economist Sonal Varma.

U.S.
Retail sales fell for the first time in 11 months, while producer prices came in lower than expected.  Obviously simply to keep up with the pace of inflation, retail sales should be up on a net basis, so the data is worse than it looks. That said it appears "better than expected".

Via Reuters:

• Retail sales fell in May for the first time in 11 months, dragged down by a sharp drop in receipts from auto dealerships. Total retail sales slipped 0.2 percent, the Commerce Department said on Tuesday, after a downwardly revised 0.3 percent increase in April.  Economists polled by Reuters had forecast retail sales falling 0.4 percent from April's previously reported 0.5 percent rise.
• Retail sales last month were depressed by a 2.9 percent drop in sales of motor vehicles, the largest decline since February 2010, as a shortage of parts following the earthquake in Japan left inventories lean and prompted manufacturers to raise prices.
• Excluding autos, retail sales rose 0.3 percent last month, the smallest gain since July.
• Economists pin much of the recent weakness on high gasoline prices and supply chain disruptions from the earthquake and tsunami in Japan and say a new recession is not in the offing.
• Receipts at gasoline stations rose 0.3 percent after increasing 1.4 percent the prior month. Excluding gasoline, retail sales fell 0.3 percent after gaining 0.1 percent in April.
• The report painted a generally weak picture of consumer spending, with sales at food and beverage stores falling 0.5 percent, while receipts at sporting goods, hobby, book and music stores dropped 0.4 percent. Sales of electronics and appliances fell 1.3 percent, the largest decline since March 2010.

PPI growth slowed, but year over year levels are now at 2008 levels.


Via Reuters:

• The Labor Department said producer prices climbed 0.2 percent, double what analyst forecasts in a Reuters poll but down from April's 0.8 percent increase. Compared to a year earlier, prices surged 7.3 percent, the largest rise since September 2008.