Inflation is Decreasing — opinion
Read also: The leak of classified US documents. How would it affect the course of the war?
The leading topic of this week in the world media was the story of the classified leak of classified data in the U.S., much of it dealing with Russia’s war against Ukraine. Some of the information was obvious facts. It turned out that "the government is hiding" not some terrible secret, but the fact that many things are done in an offhand way. For The X-Files fans and supporters of conspiracy theories, that's a shame. The latter inflicted even heavier losses when it became clear how this data was leaked. There were many versions in the beginning. Russians have always been under suspicion, thanks to a Hollywood image. But today, it’s not only about the image. The Chinese stand as a global opponent and adversary. It was not for nothing that a bullet flew by there recently, maybe they spied something from above, and the leak was in the form of not very high-quality photos. The last theory was that it was done by an “ideological idiot,” as this happened in U.S. history.
The reality, as always, has surpassed expectations, and it turned out that the idiot was not at all that ideological if one ignores his love of conspiracy theories and racism as deep philosophies. In principle, you don't expect idealism from a guy who takes selfies in an elevator and is just trying to impress teenagers. In general, everything turned out to be so simple and meaningless that it is a shame, and not only for conspiracy theorists. In the next few years, he will have time to visit the prison psychotherapist, with whom they will surely find the reason for this behavior.
Among the economic news, the key was the release of inflation data.
This inflation data pleased investors. Inflation in the U.S. has decreased again. Moreover, the resulting figure was even lower than the market's expectations. They managed to halve the inflation within a year, a significant blow to the macroeconomics adepts attached to Erdoğan, who argue that rising rates lead to rising inflation. In Ukraine, there are also many of them, because it is not without the reason they constantly criticize the National Bank for raising interest rates. Inflation in the US is now 5%, which is still high against the average of the last 20 years and well above the target. So the Fed may still raise rates, but the market expects it to do so more softly and gently. As a result, the S&P500 index rose slightly for the week and will open on Friday at 4,146 points.
Read also: What March holds for the dollar and euro exchange rates
On this background dollar in the US continues to fall compared to other currencies, waiting for a slowdown in rates. An exception could be the Turkish lira, where "Erdogan’s macroeconomics" continues to falter. The Central Bank is trying to hold the course to avoid a sharp fall before the elections. Meanwhile, the euro is getting stronger. The rate in this major pair for the world economy is already 1.107.
On the one hand, this is good for Europe because it helps to fight inflation by reducing the cost of imported goods, primarily oil. But, on the other hand, exporters, especially German exporters, will start whining soon. The Russian ruble, unfortunately, didn’t continue its decline this week, stabilizing somewhere around 82 rubles for the hated US dollar. Russian economists and officials did not give clear reasons for last week's sharp decline, although Putin began to stamp his foot on capital outflows, which may explain the ruble's dynamics. However, judging by the latest innovations in the field of "subpoena law," the outflow of capital from Russia should only accelerate.
The hryvnia is staying stable. There was a kind of normalization in the cash market, and the spread between the black and official markets has returned to at least some normal level. What is this black market which is equal to the official one? This week, the temperature on the gray (black) market was set as 37.7. In Ukraine, inflation is also decreasing, despite the winter energy shortage, which led to expensive vegetables this spring. The latest data indicate a decrease in annual inflation to 21% (by the end of 2022, inflation was 26%), which forces macroeconomists to improve their annual forecasts.
Read also: Inflation in Ukraine slows down to 21.3%
The official statistics of the Ukrainian GDP based on the results of 2022 were also pleasing. The absolute value of dollar GDP in the war year 2022 was even higher than in the pandemic year of 2020. In the entire history of Ukraine, the dollar GDP was higher than in 2022 only five times. Yes, that's an absolute figure ignoring inflation, but that fact remains. Moreover, the fall in 2022 in absolute terms was much smaller than in 2014-2015. This is primarily due to the macro-financial preservation stability and the minimal hryvnia devaluation.
In the Eurobond market, investors were half-asleep, either resting after Easter, preparing for another Easter, or simply having no ideas. Due to the war, no special movements exist in the sovereign segment. There was some activity in Naftogaz, whose bondholders recently said once again their "fee" on the grounds of restructuring proposals. The revival there was connected with the victory in the Permanent Court of Arbitration in the Hague, which determined that Russia owes Naftogaz $5 billion. However, the court hasn’t yet decided how to get this $5 billion from Russia. So this story is more about the distant future. Khodorkovsky, who won $50 billion from Russia in the Yukos case long ago, received only a hole from a bagel. In local bonds, non-resident investors continue looking for the most efficient way to escape from Ukraine, looking for high-coupon bonds. But, as it always happens in the Ukrainian market, everyone is running in the same direction, so it is very difficult to find a magic pill.
P. S. If you want to achieve excellence, you can get there today. As of this second, quit doing less-than-excellent work.
Thomas J. Watson
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