Stagflation risk jumps

<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's bite is getting worse, and the policy pushbacks are ramping up now. The stagflation risk is now very real.</p><p>American <a href="https://www.bls.gov/news.release/ppi.nr0.htm" target="_blank"><strong>producer prices</strong></a> were up 11.2% in March from the same month a year ago, the biggest increase since the data started being collected twelve years ago and topping estimates. The increase from February was +1.4%, so recent rises are now running faster than the annual average. This will cement the Fed's inflation-fighting drive and probably lock in an outsized rate hike when they meet in early May.</p><p>The US Treasury had a small <a href="https://www.treasurydirect.gov/instit/annceresult/press/preanre/2022/R_20220413_2.pdf" target="_blank"><strong>30 year bond auction</strong></a> today for $25 bln, one that was well supported garnering US$50 bln in bids. The median yield achieved was 2.73%, up only modestly from the 2.32% pa for the <a href="https://www.treasurydirect.gov/instit/annceresult/press/preanre/2022/R_20220310_3.pdf" target="_blank"><strong>same event a month ago.</strong></a></p><p>As expected, the Canadian central bank <a href="https://www.bankofcanada.ca/2022/04/fad-press-release-2022-04-13/" target="_blank"><strong>raised its policy rate</strong></a> overnight by +50 bps taking it to 1.0% and explicitly started a monetary tightening phase. Canada's headline <a href="https://www150.statcan.gc.ca/n1/daily-quotidien/220316/dq220316a-eng.htm?indid=3665-1&indgeo=0" target="_blank"><strong>inflation</strong></a> rate is 5.7% and its <a href="https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=3610049101" target="_blank"><strong>economic expansion</strong></a> is running at +3.3% real.</p><p>Yesterday we reported a sharp jump in <a href="htt