FXTRADING Economic Data Summary (Asia-Pacific | 05/14)

US PPI Surges Across the Board

US producer prices rose 1.4% mom in April, not only exceeding the previous reading of 0.7% but also far surpassing market expectations of 0.5%, marking the largest monthly increase since March 2022. On an annual basis, PPI accelerated sharply from 4.3% to 6.0%, well above the expected 4.9% and reaching the highest level since late 2022.

More importantly, final demand services prices increased 1.2% mom, accounting for nearly 60% of the monthly rise, while goods prices also climbed 2.0%. Core PPI, excluding food, energy, and trade services, rose 0.6% mom and accelerated to 4.4% yoy, both reaching their highest levels in more than a year, signaling that underlying inflation pressures are continuing to broaden. FXTRADING believes the biggest risk for the US economy now is that rising business costs are gradually creating broader inflation stickiness. Persistently elevated core PPI suggests both the services and manufacturing sectors are facing higher cost pressures, which may force the Federal Reserve to keep interest rates higher for longer, while the US dollar and Treasury yields are likely to remain supported in the near term.

Eurozone Industrial Production Slows

Latest data showed Eurozone industrial output rose only 0.2% mom in March, slightly below market expectations of 0.3%. In contrast, overall EU industrial production increased 0.8%, mainly supported by a rebound in manufacturing activity across several Eastern European economies.

Looking at the industry structure, capital goods output rose 1.1% while intermediate goods production increased 0.9%, indicating that some investment-related sectors are still showing resilience. Durable consumer goods output also edged up 0.5%. However, energy production fell 1.5% mom, while non-durable goods output dropped sharply by 4.5%, highlighting that high energy costs and weak consumer demand continue to weigh on overall European economic momentum. FXTRADING believes Europes manufacturing sector remains stuck in a fragile recovery phase. While headline figures still show modest growth, the internal structure remains unstable. Energy issues continue to be one of the biggest drags on the European economy, and with external demand and consumer spending both remaining weak, Eurozone industrial activity is unlikely to stage a strong rebound in the short term.

New Zealand Survey Shows Inflation Expectations Rising Rapidly

The latest Reserve Bank of New Zealand survey showed one-year inflation expectations surged from 2.59% to 3.41%, while two-year inflation expectations rose from 2.37% to 2.53%, moving back above the central bank‘s medium-term target range. The survey was conducted shortly after New Zealand’s first-quarter CPI remained elevated at 3.1%, increasing concerns that inflation could become difficult to contain again.

As inflation expectations continue to climb, markets have also turned noticeably more hawkish on interest rate expectations. Respondents now expect the Official Cash Rate at the end of June to rise from the previous forecast of 2.25% to 2.34%, while one-year OCR expectations jumped sharply from 2.58% to 3.01%. However, growth expectations weakened at the same time. Forecasts for GDP growth over the next year were lowered from 2.03% to 1.58%, while the two-year growth outlook slipped to 2.16%. FXTRADING believes New Zealand is beginning to show clear signs of stagflationary pressure. Rapidly rising inflation expectations suggest the central bank may be forced to maintain higher interest rates for longer, while slowing economic growth will simultaneously limit policy flexibility.

OECD Remains Optimistic on Japan

In its latest economic survey on Japan, the OECD projected that Japan‘s short-term policy rate will gradually rise from the current 0.75% to 2% by the end of 2027. Compared with Japan’s previous era of ultra-loose monetary policy, this signals a fundamental shift in the countrys policy direction.

The OECD believes Japan‘s economy still demonstrates strong resilience. Domestic demand remains stable, wage growth continues to improve, corporate profitability is strengthening, and companies’ pricing power has also become noticeably stronger. The report specifically highlighted that Japan is gradually developing a healthier wage-inflation cycle. FXTRADING believes Japan‘s long-standing deflationary mindset is gradually being broken. Improving wage growth and stronger corporate pricing power are giving the Bank of Japan more room to continue raising interest rates. If wage growth can be sustained, Japan’s ultra-loose monetary policy era may truly be coming to an end.