Higher CPI, Lower trade deficit and all-time high Japan trade deficit!
This Week In Data #6
In this edition of This Week In Data we look at:
CPI data for January
January foreign trade data
Japan’s worsening of trade balance
After two months of sub-6 % readings, CPI inflation ticked back up above 6% in January. This was well above the market expectation which was for a closer to 6% reading. What took inflation down in the previous two months is what was responsible for the uptick in January - food inflation with Vegetables making an outsized contribution. Food inflation rose 160bps to a three-month high of 6.2% in January. Excluding food, inflation remains unchanged and even core inflation remains unchanged from December – albeit at elevated levels.
Looking back, this in a sense justifies the rate increase last week. The RBI rightfully ignored the low headline inflation due to the fall in food inflation and focussed on CPI ex-food. Putting the RBI’s guidance from last week and this week’s inflation reading together means that all the talk about rate cycle plateauing is likely to come to nought. We will have the February inflation reading before the April policy meeting and unless that reading turns out to be fairly benign, the repo rate will go up further in April. Worth noting is that in the last cycle, the Repo rate had peaked at 8.5% which is 200bps higher than the current level. Cost of capital can thus continue to rise if inflation remains sticky at current levels…
The Ministry of Commerce released the merchandise trade data for January. And it was a surprise. Exports continued to decline on a YoY basis – they declined 7% in January – but the pace of decline moderated. Imports also declined by almost 4% and as a result, the trade deficit moderated sharply on a sequential basis. January trade deficit came in at US$18bn, the lowest since January 2021 and almost flat on a YoY basis.
So, while the decline in exports is a worry, the decline in trade deficit is positive from an external risk (currency) perspective.
And on the topic of external trade, Japan reported its trade data for January this week. And for someone who does not track this data on a month-to-month basis, it was a shocker. Exports grew 3% YoY, the slowest growth in almost two years. Imports however grew in the high teens (JPY terms). Consequently, the trade deficit widened to an all-time high (since monthly data became available in 1979) of ¥3497bn (20% higher than the previous high). On an annualised basis this is almost 8% of GDP, the same as that for India.
Some of this increase in the deficit is attributable to the disruption due to the Chinese New Year holiday which is seasonal and thus the deficit is overstated. But for a country that was once a global export powerhouse, its trade surplus has gradually waned through the last decade, and it has now run a trade deficit for 18 consecutive months. The decline is startling!
That’s it for this week. Next week will be very light on data before the flurry of data releases at month-end including the December quarter GDP, the first revised GDP growth number for the last financial year (FY22) and lots more…