Stagflation still a real threat

<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>And today we lead with news there is more evidence we are in a high inflation period even as economic activity sags.</p><p>Last week we noted a rise in American <a href="https://www.mba.org/news-and-research/newsroom/news/2023/02/15/mortgage-applications-decrease-in-latest-mba-weekly-survey" target="_blank"><strong>mortgage applications</strong></a>, but this week they fell back and hard and to their lowest level of 2023. So no light at the end of the tunnel of the US housing market yet. Benchmark mortgage interest rates rose to 6.39% plus points</p><p>American <a href="https://www.bls.gov/news.release/cpi.nr0.htm" target="_blank"><strong>retail sales</strong></a> grew by more than expected in January in a sign that consumers' willingness to spend may be holding, even rising, helped by their tight labour market and possibly by a slight easing of inflation expectations. They were up +6.4% from a year ago, the same as CPI inflation in the period. This is the first time these gains have matched CPI in four months. This data won't encourage the Fed to change course.</p><p>Business activity continued to decline in New York State, according to firms responding to the February <a href="https://www.newyorkfed.org/medialibrary/media/survey/empire/empire2023/esms_2023_02.pdf?la=en" target="_blank"><strong>Empire State Manufacturing Survey</strong></a>. But the slippage was very much less this month that expected.</p><p>US <a href="https://www.federalreserve.gov/releases/g17/current/default.htm" target="_blank"><strong>industrial production rose</strong></a> but at a disappointing rate, less than expected. It is now only +0.8% higher than year ago levels, hardly a measure of strength. But it has been held up by surprising strength in business capital goods. Boardrooms are positive places, it seems. House