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BOV Market Watch - Week ending 19th November 2021
19 Nov 2021
Eurozone CPI rose to 4.1 percent in October. Eurozone inflation rose to 4.1 percent in October from 3.4 percent in September, broadly in line with the 29th October’s estimate. This is the highest rate since July 2008. Excluding energy, food, alcohol and tobacco, core inflation advanced to 2.0 percent from 1.9 percent the previous month. The highest contribution to the annual increase came from energy, followed by services and non-energy industrial goods. Energy prices registered a sharp annual growth of 23.7 percent. Food, alcohol, and tobacco prices rose 1.9 percent, while non-energy industrial goods prices grew 2 percent and services cost advanced 2.1 percent. 

U.S. Import and Export Prices are Surging.
On Tuesday, the US Labour Department reported that US import prices increased more than expected by 1.2 percent in October after rising by 0.4 percent in September. The stronger than expected import price growth came as prices for fuel imports shoot-up by 8.6 percent in October after rising by 3.9 percent in September. Excluding prices for fuel imports, import prices rose by 0.4 percent in October after inching up by 0.1 percent in September. It was also reported that export prices firmed up by 1.5 percent in October after climbing by an upwardly revised 0.4 percent in September. Export prices were expected to advance by 0.9 percent compared to the 0.1 percent uptick originally reported for the previous month. Compared to the same month a year ago, import prices in October were up by 10.7 percent, while export prices were up by 18.0 percent. In the near term, US import price inflation is poised to remain uncomfortably high given the prevailing supply disruptions, elevated energy prices, and strong domestic demand during the last quarter.  However, it is expected that price dynamics will ease in early next year as demand pressures moderate and supply factors gradually improve.

UK Inflation Reaches Decade High.
UK inflation accelerated more-than-expected to a decade high in October, adding pressure on the Bank of England to tighten monetary policy soon. Consumer price inflation advanced to 4.2 percent from 3.1 percent in September, the highest rate since November 2011. This rise was above the economists' forecast of 3.9 percent and over twice the central bank’s 2 percent target. The central bank projected inflation to peak at around 5 percent in April 2022 but to fall back materially from the second half of 2022. On a monthly basis, consumer prices were up 1.1 percent versus September's 0.3 percent rise. Core inflation that excludes energy, food, alcoholic beverages, and tobacco, rose to 3.4 percent in October from 2.9 percent in September. This was also well above the forecast of 3.1 percent. Factory gate inflation hit its highest level in more than a decade in October driven by petroleum product prices. Output price inflation increased to 8 percent in October, from 7 percent the previous month, the highest since September 2011.Similarly, input prices advanced at a pace of 13.0 percent annually, the strongest since September 2008, following the 11.9 percent increase a month ago. On a monthly basis, output prices gained 1.1 percent, the fastest since February 2013, compared to a 0.7 percent rise in September. Meanwhile, input prices climbed 1.4 percent on month after a 0.8 percent rise in the previous month.  When coupled with the recent decent labour market data, the bigger-than-expected leap in CPI inflation in October makes an interest rate hike in December even more likely. 

Europe’s New Car Registrations Decline Worsens In October:
European new car registrations fell at a faster double-digit pace in October as the shortage of semiconductors weighed on auto production. Passenger car sales plunged 30.3 percent year-on-year, marking the fourth consecutive fall this year, as sales dropped 23.1 percent in September. With 665,001 units sold across the region, this was the weakest result in volume terms for the month of October ever recorded. Most EU markets suffered double-digit losses, including the four largest ones, namely Italy, Germany, France, and Spain. During the January to October period, new car registrations advanced 2.2 percent from a year ago, totalling around 8.2 million units. The European Automobile Manufacturers' Association, noted that despite the recent fall in sales due to the ongoing impact of the semiconductor supply crisis, substantial gains earlier in the year helped to keep cumulative volumes in positive territory.

RBA Chief Signals that Interest Rate Hike Unlikely In 2022.
 Reserve Bank of Australia Governor Philip Lowe stated that the latest data and forecasts do not warrant an increase in the current low 0.10% cash rate in 2022. He said that in order to consider a rate hike next year, the economy and inflation would have to turn out very differently upwards from the broadly prevailing central scenario. He signalled that the central bank will not increase the cash rate until inflation is sustainably above the target range. At the latest November monetary policy meeting, policymakers indicated that they will be patient.
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Bank of Valletta p.l.c. is a public limited company regulated by the MFSA and is licensed to carry out the business of banking and investment services in terms of the Banking Act (Cap. 371 of the Laws of Malta) and the Investment Services Act (Cap.370. of the Laws of Malta).