U.S. Consumers Pausing for Clarification on Policies and Direction of Inflation

February 14, 2025

The dollar’s recent step backward was extended this Friday. The weighted DXY dollar index fell 0.4% overnight and has retreated 2.0% in the three weeks since President Trump’s inauguration. The dollar dropped 0.6% overnight against the New Zealand dollar, 0.5% versus the Mexican peso, 0.4% against the Australian dollar, 0.3% vis-a-vis sterling, and 0.2% against the euro and Swissy, while holding its own against the yen.

Since the Trump inaugural, the price of gold has advanced 8%, while those of Bitcoin and oil have dropped by 9.4% and 7.7%.

Stock market action overnight saw share prices leap 3.7% in Hong Kong but drop 1.1% in Taiwan. The People’s Bank of China rhetorically messaged a long-awaited commitment to a monetary policy stance that prioritizes the promotion of faster consumption-led economic growth, but U.S. tariff policy remains a big uncertainty. Trump signed a bill authorizing reciprocal tariffs — selectively matching what ever levies other economies impose on the United States — but such will not be triggered until April, which allows for more modification in the meantime.

European share prices and U.S. stock futures are little changed.

The 10-year U.S. Treasury yield fell another 7 basis points overnight and is down 17 basis points since January 23. Comparable sovereign debt yields in Europe and Japan are little changed.

President Trump’s management style is like a Jackson Pollack work of art, involving perpetual zigs and zags. At any moment, many market-influencing balls are in the air, and details of his radical changes seemingly change from moment to moment. The resulting chaos puts allies, enemies, and anyone in between who might be affected on their heels. The default reaction is one of wait and see, but that can work to the economy’s disadvantage. Businesses put off capital investments, and consumers, who wonder about the security of their jobs and next medicare checks, defer borrowing and buying. And so it is that the first small business sentiment reading of Trump 2.0 showed a drop of 2.3 index points, and today came the unexpected news of a 0.9% drop in U.S. retail sales, the largest monthly slide in 22 months. Consumer and producer price inflation in the United States during January exceeded expectations, and a 0.3% rise of import prices was the most in nine months, thanks to a 3.2% jump in fuel costs on top of monthly gains of 1.1% in November and 3.2% in December.The 12-month rise of import price eased back to a 2-month low of 1.9%, while export prices were 2.7% above their January 2024 level.

U.S. industrial production data today provided better news. Output rose 0.5% above December’s upwardly revised level and was 2.0% higher than a year earlier. Capacity usage improved to a 5-month high of 77.8%.

Among data released by other countries, today’s main attraction was the second estimate of Euroland GDP growth last quarter, which was revised from an initial zero percent to +0.1% and associated with a four-quarter rise of 0.9% that matched the third quarter’s result and yielded a full-2024 growth rate of 0.7% after 0.4% in 2023.

Economies within the EU with negative economic growth last quarter included Ireland (-1.3%), Germany (-0.2%) and France (-0.1%). GDP in Italy flat-lined for the second straight quarter and was associated with a year-on-year rise of only 0.5%. Euroland’s fourth largest economy, Spain, experienced a third straight 0.8% quarter-on-quarter rate of growth and year-on-year growth of 3.5%, and neighboring Portugal saw GDP climb 1.5% on quarter and 2.7% on year.

Employment growth in the euro area slowed to a quarterly pace of just 0.1% last quarter and on-year growth of 0.6% that quarter and 0.9% on average in 2024.

GDP in Singapore rose 0.5% last quarter and 5.0% from a year earlier. Growth in full-2024 quickened to 4.4% from 1.8% in 2023. In Malaysia, GDP fell last quarter by 1.1% but was still 5.0% greater than in the final quarter of 2023. Likewise, Malaysia experienced faster growth of 5.1% in 2024 than in 2023 (+3.6%) and a wider current account surplus (32.8 billion ringgits) than in 2023 (MYR 28.2 bln).

Aside from the aforementioned U.S. import and export price release, many economies reported price data today.

Indian wholesale price inflation slowed more sharply than forecast to a 2-month low of 2.3% last month.
German wholesale price inflation in January of 0.9% was at a 21-month high but well down from the May 2022 peak of 20.3%.
The combined Swiss PPI/import price index ticked up 0.1% in January but barely remained in the red when compared to a year earlier. The on-year dip of 0.3% was the smallest sub-zero reading in a 22-month streak.
Spanish consumer price inflation of 2.9% in January was its highest in 7 months.
A 2.7% rate of Greek CPI inflation last month was a 4-month high.
Polish CPI inflation rose 0.6 percentage points to a 13-month high of 3.3%.
Bulgaria’s 3.7% rate of consumer price inflation was the most in a year.
Israeli CPI inflation of 3.8% was the most in 16 months.
In Lithuania, too, CPI inflation jumped 1.5 percentage points to a 16-month high of 3.6%.

Interest rate policy announcements were made today in Russia and Romania. The Central Bank of Russia‘s key rate has been 21.0% since a trio of hikes last July, September and October that totaled 500 basis points. Russian CPI inflation has accelerated from 2.3% in April 2023 to 9.5% in December. A released statement explains the policy pause since October’s move:

We are now more certain that monetary conditions have already become restrictive enough for inflation to start decelerating in the next few months. Therefore, we have decided to continue the pause in key rate increases. If the earlier monetary policy tightening turns out to be insufficient, we will be ready to reconsider the issue of raising the key rate at our next meeting.

National Bank of Romania monetary policy is also on pause. The interest rate crested at 7.0% from January 2023 until an initial 25 basis point cut last July that was followed up in August with a second 25-bp reduction to the current 6.5% level. Romanian officials have turned guarded in the face of geopolitical uncertainties and risks associated with domestic fiscal policy. Romanian CPI inflation had decelerated from 16.8% in November 2022 to 4.6% last September but was most recently quoted at 5.0%.

This entry was posted
on Friday, February 14th, 2025 at 8:37 am and is filed under New Overnight Developments Abroad – Daily Update.
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