Bank of England (BoE) Monetary Policy Committee Member Adam Posen tells CNBC in an interview (see below or click here) that stubbornly high inflation is keeping the Bank of England members up at night. However, Posen prefers this situation to deflation (as all central bankers would). Slack in resource utilization is not having the same dampening effect it is having in other industrialized countries like the U.S. I would think the steady decline in the British pound has a lot to do with the high inflation rate, but Posen claims it is not a sufficient explanation. Note well that this depreciation is essentially what the BoE, or at least Mervyn King, has desired to kickstart economic growth in the UK through higher exports and lower consumption of foreign goods.
The interviewer reminded Posen that the BoE was wrong about its inflation forecast going into 2007, and Posen accordingly refused to get nailed down on any timeline for a rate hike. He did note that if there is no clear inflation shock in the economy, then the BoE will have to assume that inflation expectations are too high.
Bloomberg Businessweek reports that the Board of Regents for the University System of Georgia has approved tuition increases at Georgia public universities and colleges. Research universities will experience the largest increases, as much as 16%. Many state universities will see increases of as much 9%. Two-year colleges will see tuition increase as little as 4%.
Reuters reports that a senior Chinese government economist has warned that China will not meet its 3% inflation target. He suggests a 5% target instead. See “China inflation target may be out of reach: economist.”
It is also interesting to read that China feels constrained by the monetary policies of its trading partners:
“Ba Shusong, another senior researcher at the DRC, said the central bank would likely be cautious in raising interest rates, preferring instead to use quantitative tools, such as open market operations and required reserves, to manage liquidity.
“The ultra-low interest rate policy stance adopted by the United States and some other countries actually give China very limited scope to raise interest rates,” Ba told the forum.”
Atlanta’s Hartsfield-Jackson airport will fill a large budget gap by raising fees across a variety of services and cutting jobs. The airport needs to act to maintain its credit rating for refinancing existing debt and generating additional capital.
“The new fees—including increases in short-term and daily parking and new surcharges on hotel airport shuttles and some additional property leases—will generate $20.9 million in new revenues…The new fees are not likely to be popular with the city’s hospitality community. Last year, the hospitality community convinced city leaders not to increase fees for operators of shuttles for each time they drive to the airport.”
More proof, if any was needed, that the worst is over for U.S. real estate:
Steel stocks have taken a beating since last making 52-week highs at the beginning of April. For example, the Market Vectors Steel ETF, SLX, is down 12% over this time (see chart below). However, the price increases continue to roll out from steel companies like AK Steel (AKS).
Yesterday, AKS announced two price hikes:
“…it will increase base prices for all 200, 300 and 400 series flat rolled stainless steel products by 6% to 9%, depending upon the grade and product form, effective with shipments on May 30, 2010.” (AK Steel Announces Stainless Steel Price Increase)
“…a $435 per ton surcharge will be added to invoices for electrical steel products shipped in June 2010.” (AK Steel Announces June 2010 Surcharges For Electrical And Stainless Steels)
Full disclosure: Author owns AKS
As of May 10, China will increase the reserve ratio requirement for banks 50 basis points. Currently, the biggest banks must maintain a 16.5% reserve ratio while smaller banks must maintain 14.5%.
Bloomberg reports that this third increase for the year may still prove inadequate to tame China’s inflation threat. Chinese officials continue to reassure markets that monetary tightening targets rampant speculation in real estate and that policy remains accommodative for the rest of the economy.
MEMC Electronic Materials (WFR) manufactures silicon wafer solutions for the semiconductor and solar industries. During its latest earnings conference call (click here for the entire transcript from Seeking Alpha), WFR indicated that pricing is finally firming for its wafer business. The deflation seen in 2008 and 2009 appears to finally be ending. Here is what company executives said:
“Price was up modestly versus last quarter and is still down slightly versus the previous year…The absolute level of profitability is not satisfactory, but the improving trend should continue as restructuring efforts progress, as productivity’s aided by volume and as price continues to recover. We’re comfortable to say that the price increases, first of all in Q1, we had like low single digits. In Q2 and Q3 we’ll have mid to high single-digit increases quarter-on-quarter.”
“We could have easily turned around and raised price on our Solar customers. We just didn’t want to do it. While we’d have shown a much better result this quarter, but they would have missed all their plans and we just didn’t feel that that’s the right thing for us to do. So we have given them heads up, and now in Q2 we’re raising price, and the price is increasing as much as it declined from Q4 to Q1, it’s increasing from Q1 to Q2. And we see a firmness as well in Q3, but it’s still early, but so far so good.”
WFR has also experienced cost pressures from its subcontractors, so the company needs these price increases to halt or slow down the current declines in its gross margins. These price increases will very likely continue to push through the semiconductor and solar value chains.