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June 11 2021

1. Transitory inflation…

The US CPI print overnight was another large upside surprise for May with the second largest advance in more than a decade. CORE CPI rose 0.7% on the month after an outsized 0.9% increase in April. But the surge in inflation looks to be temporary and may not push the Federal Reserve to tighten policy for now. Digging into the components of the CPI, 3 categories that comprise ~5.5% of core CPI drove 50% of the monthly increase. These were i) used cars & trucks, ii) car & truck rentals, and iii) public transportation (largely reflecting airline fares). Further strength came from new vehicles and apparel, where price inflation likely reflects supply chain challenges.

The Fed meets next on June 16, so watch this space.

Total detached housing approvals:

Source: Evans and Partners, Macrobond

2. 12 times a charm for jobs…

Australian job ads climbed for a 12th straight month in May to reach their highest level since 2008. ANZ job ads jumped 7.9% in May, and are up almost 220% over the year from when Covid shut down many industries. Job ads now sit 39% above the pre-covid level. Also interesting to note significantly stronger than expected wage price index in the March quarter, annualising at 2.4%, and narrowing the gap to the RBA 3% yardstick.

Looking at employment, The Labour Force Survey measure, which covers residents only, shows Q1 employment was back to pre-covid levels. However, the Labour Account, which is a more complete picture of employment as it captures temporary residents, suggests employment was still 2.1% below the pre-covid level.

Australia remains a relative global outperformer on employment for now, but will be interesting to watch how the US catches up as they reopen.

Source: Macquarie, ABS

3. The drought is over…

If you are heading out to rural parts of Australia this long weekend, keep a lookout for the bountiful winter crops! Total Australian winter crop acreage is 23.2mha, which is the highest since 2016-17, and +2.4% yoy. The east coast in particular is forecast for a record June crop – well-boding for portfolio holding Nufarm. Farm GDP (in red in chart below) captures total real farm output in Aus, including grains, meat, etc. Rural exports have been helped by a 40% jump in global food prices in May, the fastest monthly increase in more than a decade, and the 12th consecutive month of increases, according to a closely followed UN index.

Source: Macquarie, ABS