Higher global inflation, higher global interest rates

<p>Kia ora,</p><p>Welcome to Thursday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.</p><p>I'm David Chaston and this is the International edition from Interest.co.nz.</p><p>Today we lead with news inflation pressures are confirmed today, setting the stage for more rate hikes.</p><p>American <a href="https://www.bls.gov/news.release/cpi.nr0.htm" target="_blank"><strong>consumer price inflation reached 7%</strong></a> in December, a 40 year high but in line with what was expected. Food prices rose +6.3% and energy prices +29% in the year. The rest were up 5.5% or which clothing was up +5.8% and rents up +4.1%. Medical costs which are very high to start with were only up +2.5%. There is plenty of evidence here that cost increases are broad for households and probably not going away any time soon. But because there were no surprises in this data, markets are tending to consider it 'priced in'.</p><p>But for all that, it more or less confirms the US Federal Reserve will start raising its policy rate 'soon', <a href="https://www.clevelandfed.org/newsroom-and-events/interviews/intvw-20211201-president-mester-discusses-inflation-pandemic-and-tapering-in-bloomberg-tv-interview" target="_blank"><strong>probably in March</strong></a>. It can't let inflation get embedded at these levels.</p><p>US monthly budget statement will be released at 8am NZT and we will update this item then. It is expected to show a sharp improvement in the monthly budget deficit, down to just -$25 bln in the month - which is almost in balance for them. Much more responsible management of their budget is one factor, along with better tax flows from an improving economy.</p><p>Today's well supported <a href="https://www.treasurydirect.gov/instit/annceresult/press/preanre/2022/R_20220112_2.pdf" target="_blank"><strong>US Treasury 10yr bond tender</strong></a> has brought sharply higher yields, up to 1.65% from 1.45% at the <a href="https://www.treasurydirect.gov/instit/annceresult/press/preanre/2021/R_