Although still not proved beyond the shadow of a doubt, since the first bat flapped its covid wings in Wuhan (China), it has gone through several mutations - most notably, Alpha, Delta and now Omicron - each bringing fresh challenges and fiscal and monetary and social responses.

The year 2020 brought lockdowns and social restrictions that, in turn, sent many (if not most) global economies into a deep recession. The year 2021 brought a recovery as government and central bank largesse succeeded in keeping incomes and businesses afloat. Gains in most major equity markets around the world attest to this - the S&P 500 index ended the year 2021 up 26.9%; the Stoxx-50 index by 21.0%; the FTSE-100 index rose by 14.3%; the All Ordinaries index by 13.6%, and; the Nikkei-225 index by 4.9%.

All up, they were all up, notwithstanding reduced and/or the "threat" of lessened government spending and easing central bank policy accommodation.

To be sure, governments around the world couldn't spend their way into a recovery forever without hitting some sort of a roadblock -interest rates on their borrowings to shore up their domestic economies would go up. And interest rates have risen.

The yield on ten-year bonds in most major economies rose in 2021 and have continued to track higher in the early days of the New Year.

This would have been a positive indication that aggressive fiscal and monetary policy counter-pandemic measures have succeeded. Indeed, along with easing social restrictions and the re-opening of businesses due to increased vaccinations, they have.

But it opened another Pandora's Box where supply failed to catch up with the unleashing of pent-up demand, sending inflation higher.

The Omicron variant that reared its infectious head towards the end of 2021 has worsened the bottleneck in the supply chain.

This time, we find empty shelves at the supermarkets. Not because consumers have so much money to spend them on but more because covid has infected workers working mines to dig up raw materials factories need to produce the components necessary to manufacture widgets; the people to transport them, and those that load "toilet papers" onto supermarket shelves.

Heck, even covid testing sites in Australia (for one) were closed as numerous staff became infected and were either on their sickbeds and/or required to isolate.

While government and central bank largesse may have succeeded in moderating the impact of the pandemic on jobs and incomes and spending, an additional trillion dollars plus wouldn't be able to make sick workers get up and mine, manufacture, distribute and load shelves.

Not to mention, the impact this is having on the balance between supply and demand, that we now are all experiencing in terms of dearer prices for goods and services.

As such, it comes as no surprise that economic forecasters are predicting a slowdown in the global economy this year.

Sure, governments around the globe could again do what they did in 2020 and 2021 - throw money at the problem. But this time is different.

Throwing more money to shore up economic activity only makes the fire of inflation burn even more. Then again, not doing so to tame escalating price increases risks sending employment and incomes and profits and economic growth and investment fortunes on the reverse.

Health truly is wealth.

As it was in 2020, so it is in 2021.

Yes Virginia, I don't believe it too until... I re-read my first scribbles on this site at the beginning of 2021.

On January 12 this year, I wrote: "Fiscal and monetary authorities prompt and aggressive counter-cycle responses saw us through the year - mitigating impact on businesses and employment - that, at the same time, underwrote gains (or limited the losses in most equity markets."

Punctuated by the roll-out of vaccines towards the dying days of 2020.

All looked swell... until the coronavirus variant that was first spotted in the UK and in South Africa.

"It's reportedly less deadly but more infectious and has already triggered renewed lockdowns in Europe and Asia and the new strain has now circled back to China, that in turn, puts a question mark on whether or not a new vaccine would need to be developed against the new strain."

Replace 2020 with 2021 and the coronavirus mutation (later named Delta) with Omicron and voila! I've got my end-of-the-year scribble all sorted, thank you very much.

The Delta variant devastated India and prompted many other countries around the globe, including Australia, to reimpose social restrictions and lockdowns.

The Omicron strain's now prompted several countries to again put up international border restrictions. But so far, so good. Recent reports are that it's less virulent, less deadly and current vaccines offer some kind of protection.

The difference between 20 and 21 is inflation - the world didn't have that in 2020. So much so that, after insisting that the recent surge in inflation is "transitory" for months, Fed chair Powell (in his testimony before the US Congress at the end of November) declared that it's "probably a good time to retire that word".

This means faster than expected taper and earlier than expected interest rate hikes.

While the final assessment and implications of the Omicron variant would give the Fed pause for thought, it couldn't afford inflation to run away.

The difference is Evergrande and China's slowdown. No one was talking (concerned) about Evergrande's - China's second biggest property developer - debt problems. Not even the Fed. In his press conference, chairman Jerome Powell intimated that: "In terms of the implications for us, there isn't, there's not a direct United States exposure. The big Chinese banks are not tremendously exposed."

Evergrande sends blood pressure rising each time its debt repayment falls due.

But greater than this is the slowing Chinese property market's impact on the economy. Some years back, nobody would have cared. But fast forward to today and China is one of the main engines of growth in the global economy.

Have no fear. China's politburo recently flagged the relaxation of some curbs in the real estate sector next year, determined to stabilise its economy.

Already, the People's Bank of China (PBOC) cut banks' reserve requirement ratio by 5 percentage points. According to Bloomberg, this would release "some 1.2 trillion yuan ($188 billion) of liquidity" and is expected to provide more stimulus as needed.

A few uncertainties remain as 2021 turns into 2022. But think about it, the world has survived the great pandemic of 2020 and the variants of 2021.

Heck, most equity markets even soared to record highs this year.

Bottomline: fiscal and monetary authorities are willing and able to do whatever it takes to return their respective economies back to normal.

That is, to provide further support if needed, or reduce policy accommodation to keep inflation at bay.

Australians all, let us rejoice... for despite the Delta-induced lockdowns in the September quarter, the domestic economy shrank by much less than most of us were expecting.

The Australian Bureau of Statistics' (ABS) National Accounts report shows that GDP declined by 1.9% in the three months to September 2021. This may be the third biggest quarterly fall on record - next to the 2.0% decline in the June 1974 quarter and, of course, the 6.8% drop in the June quarter of last year - but it's also heaps lesser than consensus expectations for a 2.7% contraction.

Australians all, let us rejoice for this contraction is transient and that, aside from the latest numbers being a belated picture of the Australian economy, forward and fresher indicators suggest a strong rebound in the fourth quarter.

Household disposable income growth accelerated to a 4.6% rate in the September 2021 quarter from minus 0.43% in the previous three-month period. At the same time, the household savings ratio jumped from 11.8% in the June 2021 quarter to 19.8% in September.

The increase in disposable income and "forced" savings are certain to be spent this quarter and the next ones now that the lockdowns are over - evidenced by consumer confidence readings (that showed optimists outnumbering pessimists even during the lockdowns in the September quarter).

So much so that business confidence rebounded to a six-month high in October. You know the drill, increased business confidence leads to higher investment in plant & machineries and equipment and staffing, lifting employment and by extrapolation, consumer spending, sales, profits, investment...

It would have been a highway to heaven - a clean run to stronger growth, if you will - had the Omicron variant reared not its ugly head. Already, Australia and a number of countries have re-imposed international border restrictions or shut them altogether.

To date, health experts are still monitoring the Omicron variant for its virulence, transmissibility, and resistance to current vaccines.

Not only this, Australia and the world now must contend with the US Federal Reserve's recent change of tact.

After insisting that the recent surge in inflation is "transitory" for months, Fed chair Powell (in his testimony before the US Congress at the end of November) declared that it's "probably a good time to retire that word".

This means faster than expected taper and earlier than expected interest rate hikes.

While this would reduce liquidity, it'll also mean the transient pandemic-induced abnormal cycle is heading back to normal.

Out of (South) Africa

Just when citizens of Planet Earth were beginning to enjoy their new-found freedom - through herd immunity, increased vaccinations and/or learning to live with Delta - comes a new kid in town.

And it's name is Omicron.

The discovery of this coronavirus variant - first detected in South Africa - pushed back financial markets' interest rate hike expectations that were brought forward only a few days before.

Consider these:

In October, the Bank of Canada announced the end of its quantitative easing programme. This was followed very, very soon after by the Reserve Bank of Australia's (RBA) decision to "discontinue the target of 10 basis points for the April 2024 Australian Government bond" at it's 2 November Board meeting.

The US Federal Reserve wasn't far behind, declaring on the 3rd of November that it would "taper" its US$120 billion a month purchases by US$15 billion per month and every month thereafter.

All in the name of preventing the "transitory" surge in inflation from becoming persistent. But the rise and rise in consumer prices for whatever reasons - the unleashing of pent-up demand due to easing of pandemic restrictions and re-opening of businesses; supply chain constraints; rising costs of raw and intermediate materials used in production; higher wages; or all of the above - has already prompted financial markets to bring forward the timing of central bank interest rate hikes.

If anything, the Reserve Bank of New Zealand's (RBNZ) has already jumped the gun.

The RBNZ raised interest rates by 25 basis points to 0.5% in October - ahead of the other central banks' (mentioned above) their policy adjustments - "so as to maintain low inflation and support maximum sustainable employment".

New Zealand's first increase in interest rates since June 2014 was quickly followed with another 25 bp increase in the RBNZ's official cash rate to 0.75% at the conclusion of its 24 November meet, explaining that,

"Global supply-chain disruptions are causing both cost pressures and constraints on production, at a time when consumer demand remains strong. Central banks globally face the challenge of distinguishing between transitory price increases and underlying sustained inflation pressures to assess the need for, and timing of, reductions in the level of monetary policy stimulus."

Rising inflation has also prompted the Bank of Korea to raise interest rates in November - the second in three months.

Financial markets now bet that the RBA wouldn't be far behind. As per Bloomberg, "Swaps markets are fully pricing in a 15 basis-point hike in May that would take the cash rate to 0.25% from the current record-low 0.10%, then two more quarter-point rises -- with the chance of a third -- over the remainder of 2022".

No more.

Bond yields dropped sharply, and equity markets weakened at the end of last week, reflecting concerns over this new "variant of concern's" impact on economic growth.

Already, several countries have implemented travel restrictions and quarantine requirements to humans travelling from South Africa. But news that Omicron has already been detected in Hong Kong, Germany, the Netherlands, Belgium, Italy, Denmark, the UK, Israel and Australia (to date) suggest that international borders would be closed to these "infected" countries as well.

This could domino to infect other countries that could see travel restrictions put up against them.

There goes tourism, travel, trade, international students, etc. once again. Not only that, but it'll also intensify the supply chain problems that's caused the spike in inflation in recent times.

However, the lowering of consumer demand - should Omicron turn out to be more sinister than Delta - should provide an offset to inflationary pressure.

It's still early days. Health officials (to date) still don't have enough data about Omicron. More so, in terms of its virulence or whether present vaccines are potent to keep it at bay.

All of a sudden, the prospect of a gentle rise in interest rates seems to be the better alternative than being placed in lockdown anew.

Health truly is wealth.

By most accounts, Jacinda Ardern's island has succeeded in combatting the coronavirus pandemic.

As at October 26, worldometer.com data showed that New Zealand ranked among one of the countries in the world with the lowest case of COVID-19 infections (183 out of 223 countries) and deaths (198 out of 223).

But before you cry fake news - because New Zealand has a small population - the country's infection and death rates per a million heads also tell the same story. New Zealand's total cases per one million of its population is 0.1%; death rate is 0.0006%. These compare with Australia's 0.6% and 0.006%, respectively. These compare with the United States' 13.9% and 0.23%, respectively.

While, like the rest of the world, it didn't escape the recession wrought by the pandemic, it's one of the very few advanced economies that rebounded quickly.

The annual rate of growth in New Zealand's GDP turned to a positive 2.7% in the third quarter of 2020 (following an 8.9% contraction in the previous quarter) and continues to this day. Over the same period (and through the fourth quarter of last year), the annual GDP growth rate in Australia, the US, the Eurozone, Japan and the UK were still preceded by a negative sign.

But this success comes at a price. The re-opening of the economy has unleashed pent-up demand for goods and services. But given the current problems with supply constraints, this has also sent inflation soaring.

New Zealand's annual inflation rate soared to 4.9% in the third quarter of this year (from 3.3% in the June quarter) - both more than the Reserve Bank of New Zealand's (RBNZ) remit requiring the central bank to keep inflation within the 1% to 3%.

What's the RBNZ to do? Raise interest rates of course to slow consumer spending, stoked by the declining rate of unemployment - down to 4.0% in the June quarter (the lowest level since the September quarter of 2018.

New Zealand's central bank raised the official cash rate to 0.5% from 0.25% following its October 6 board meeting, sending the Kiwi stock market down.

The NZ Cap 50 index has declined by 2.0% from January to end-October this year. Not good in comparison with the strong positive returns from the all ordinaries index (+11.5%), the S&P 500 index (+22.6%), or even the Nikkei-225 index's small 5.3% return over the same period.

Financial market expectations that the RBNZ would again lift interest rates - by 25 to 50 bps - at their November board meeting will put more downward pressure on Kiwi equities.

The RBNZ won't wait to find out whether or not the current inflation surge is transitory, it's taking action to ensure that it will be.

It wasn't so long ago - before the COVID-19 pandemic struck to be precise - that every other central bank around the planet were hopin' and wishin' and prayin' for consumer price inflation to, at the very least, move higher to within their expressed targets.

These targets were generally in the vicinity of around 2% -- the rate at which the world's monetary and fiscal masters consider stable inflation. They are correct of course. We only have to look back at the experience after the early 1990s recession.

Back then, inflation moderated from the wilds swings of the decades before it and so did the instances of recession (until the GFC, that is). It was the time of the "Great Moderation".

However, since the global financial crisis of 2008-2009, inflation died. We've been all witnesses to half-a-century low unemployment rates across many nations around the world and yet inflation remained dead. So much so that in its 13 April 2013 publication, The Economist printed "The death of inflation" with the tagline "Central banks in the rich world may have been too successful in subduing price pressures".

The certainly of tamed and predictable low inflation has brought dividends to economic fortunes everywhere. Businesses not having to worry about about price shocks were able to adjust their operations accordingly. Think of the "just in time" inventory management of the 1990s. No longer do factories have to hoard stocks out of fear that prices would be more expensive in the future.

Think of all the consumers who no longer have to worry that their wages will be eroded by rising prices as the costs of the utilities, goods, and services they purchases remain virtually stable.

Inflation has died. It was even buried six feet underground when the pandemic happened.

But as the world conquered and adjusted to learn to live with the virus, inflation is back!

We're now living in a material world (sorry, that was Madonna). The easing of social and business restrictions in most countries on Planet Earth have lifted consumer demand and got factories humming to satisfy these demands.

This would have been the start of a virtuous cycle where increased household spending are met and catered for by stronger factory production and by extension, raised investment in plant and equipment and staffing - notwithstanding dearer costs of raw materials and other factors of production.

The problem is rising measured inflation measures are sending inflation over future price rises on the up and up as well.

While a positive for overall economic growth in the near term - consumers will bring forward spending before prices become more expensive later - high and rising inflation, if it continues and persists, triggers uncertainty and unpredictability over the morrow.

Unpredictability over monetary and fiscal policies and businesses and consumers' reaction function to these.

So far, most central banks (led by the Fed) still thinks that the recent surge in inflation is transitory. More recently, US treasury secretary Janet Yellen noted that while she expects inflation to ease in the second half of next year as supply chain bottlenecks and the tight labour market improve, rising consumer prices will continue before then.

That's a long hot summer, spring and winter in Australia. Three seasons of high inflation that eventually will find its way into inflation expectations ... and the consequent monetary policy response.

Tightening policy would certainly lessen the "demand pull" side of the inflation equation but I don't think it would address the "supply push" side of it under current circumstances.

"...participants generally assessed that, provided that the economic recovery remained broadly on track, a gradual tapering process that concluded around the middle of next year would likely be appropriate. Participants noted that if a decision to begin tapering purchases occurred at the next meeting, the process of tapering could commence with the monthly purchase calendars beginning in either mid-November or mid-December."

The minutes of the US Federal Reserve's 21-22 September FOMC meeting couldn't be any clearer. It is, perhaps, because of this clarity that, instead of having a tantrum, US equities rose - the S&P 500 index gained 1.7% on the day of the minutes were released; the yield on 10-year US Treasuries declined from 1.58% to 1.55%; and the US dollar index was little changed to 93.20 from 93.16.

Not even when on the same day of the release, the US Bureau of Labor Statistics reported that remains on the up and up. The annual headline inflation rate increased to a 13-year high of 5.4% in September from 5.3% in the previous month, core inflation steadied at 4.0% but are still around 29-year highs.

Communication is key.

As per the minutes: "The illustrative tapering path was designed to be simple to communicate and entailed a gradual reduction in the pace of net asset purchases that, if begun later this year, would lead the Federal Reserve to end purchases around the middle of next year. The path featured monthly reductions in the pace of asset purchases, by $10 billion in the case of Treasury securities and $5 billion in the case of agency mortgage-backed securities (MBS)."

"Participants generally commented that the illustrative path provided a straightforward and appropriate template that policymakers might follow, and a couple of participants observed that giving advance notice to the general public of a plan along these lines may reduce the risk of an adverse market reaction to a moderation in asset purchases."

The problem is the longer measured inflation lingers, the more inflation expectations become more entrenched. For sure, reducing liquidity in the system would help ease pressure on prices by somewhat restraining soaring consumer demand. Then again, it's unclear how this could immediately relieve bottlenecks in the supply chains and the energy crisis - ones, that could cap (even reverse) economic growth momentum.

Have no fear, the Fed has a Plan B.

According to the minutes: "...in keeping with the outcome-based standard for initiating a tapering of asset purchases, the Committee could adjust the pace of the moderation of its purchases if economic developments were to differ substantially from what they expected."

It had been nearly half a century ago when the global economy have had its last encounter with stagflation. he first episode came in the mid-1970s. US CPI inflation surged from a low of 2.95% in August 1972 to 12.1% by December 1974 while the US economy stagnated, with annual GDP growth collapsing from 7.6% in 1973 to negative 2.3% by 1975. The unemployment rate soared from 4.6% to 8.6% over the same period. The same scenario played out in the mid-1980s.

The "great moderation" - strong growth with moderate inflation - that followed, had largely consigned stagflation to baby boomers' memories. Even more so after the global financial crisis, when years of stronger growth and record low unemployment rates failed to significantly lift inflation (low-flation).

Case in point, US headline CPI inflation averaged 1.84% in 2019 (the year before the covid-19 pandemic struck) at the same time that the average jobless rate has fallen to 3.7% -- the lowest level since the late 1950s.

The same could be observed across many, if not most, global economies. So much so that, not only the US Federal Reserve, but most major world central banks have been hard at work trying to get measured inflation up to their targets.

The covid-19 pandemic initially brought down growth and inflation and the unemployment up. Although the pandemic and its more virulent variants continue to haunt to this day, social restrictions have been relaxed and businesses have resumed operations. All thanks to people on Planet Earth learning to live with the virus due to increased take-up of vaccinations.

This, in turn, released consumers' pent-up demand, placing pressure on factories to increase production to satisfy household needs and wants - from computer chips to pasta to (more) toilet paper.

Manufacturers need raw materials to manufacture these products. Factory demand - from oil and coal to power their machineries to other commodities such as aluminium and copper - coupled bottlenecks in supply chains, including port delays and a shortage of shipping containers (that affects delivery and availability of raw materials) - are adding to upward pressure on input prices, which they're now passing onto retailers that are then passed on to consumers.

Voila! We now get the "flation" part of "stagflation". The JP Morgan Global PMI survey showed that both input costs and output charges accelerated for both the manufacturing and services sectors in September.

But where's the "stag"?

Recent indicators suggest that while global economic growth has moderated from this year's high, activity continues to expand. Better, the September JP Morgan Global PMI survey showed the composite PMI edging higher to a reading of 53.0 from 52.5 in August, with both manufacturing and services remaining above the 50 expansion/contraction demarcation.

There's no "stag". However, there is a risk that inflation becomes more enduring. Higher prices would constrain consumer spending that would be constricted even more when central banks are forced into aggressive policy tightening to tame rising prices. This would turn the current growth moderation into economic stagnation.

But chances are the spike in inflation is going to be transitory as the Fed and the European Central think (hope). Inflation would ease as more and more factories return to full production, supply chain bottlenecks are cleared and pent-up consumer demand returns to normal.

The COVID-19 pandemic - and the freezing of nearly all economic activity it brought about -- was godsend to climate change activists.

Recall those pictures of those bright, bright, sun-shiny days underscored by a CNN article (published last year) that for the first time in 30 years, northern Indians were able to see the peak of the Himalayas. Similarly, The Guardian reported in early-2020 (when the pandemic began) that because of the lockdowns, Venice's murky waters now offered "not just a clear view of the sandy bed, but shoals of tiny fish, scuttling crabs and multi-coloured plant-life".

The vaccine did it. While the pandemic and its more virulent variants remain to this day, the increasing pace of vaccination on Planet Earth - along with still accommodative monetary and fiscal policies - have allowed the easing of social restrictions and the re-opening of businesses.

Quarantined consumers' pent-up demand were suddenly let loose. Factories are now humming to satisfy the rebound in household spending.

This has spurred sharp increases in commodity prices from aluminium, to oil, to copper. The S&P/GSCI commodity price index has rallied by 146.2% from its April 2020 low to the end of September this year.

You call that a rally? This is a rally. Coal prices rocketed by 465% from its 2020 year low to the end of September this year. To produce the "widget" consumers want, factories need electricity. In this climate change-correct world, power "should" be generated through solar, wind, water or whatever... no more of that greenhouse-emitting fuel called coal.

But climate change correctness is exactly what's pushing the price of coal higher and higher. There's less coal supply available to satisfy the increase in demand. More so, given the reduction in investments in coal mine exploration and/or production resulting from heightened international effort to combat global warming.

Zero-sum game? As the global recovery continues to progress, demand for the "cheaper" energy alternative would only get hotter.

But this, in turn, is also lifting the price of carbon emissions. Carbon futures surged by 305.1% to a record high of €61.74 a metric tonne (from their 2020 lows) at the end of September this year.

Then again, this is a good development for climate change. The escalating price of "dirty" coal will eventually make greener alternatives more financially and economically viable.

Just as Australian federal treasurer Josh Frydenberg declared in his address to the Australian Industry Group on September 24: "It's a long-term shift, not a short-term shock."

Financial markets have been on edge ever since they got the first whiff of "taper" in the air.

This started when the minutes of the US Federal Reserve's April 27-28 FOMC meeting revealed that: "A number of participants suggested that if the economy continued to make rapid progress toward the committee's goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases."

Que horror! From this time on, every dip in the equity markets - and more generally, risk-off moves - became one of the major go to excuses. Good news on the US economy and progress on vaccinations stirred taper talks. Bad news for the bulls and risk assets.

That was until the Fed's September 21-22 FOMC meeting. This time it became a case of heads, bulls win; tails bears lose.

In its statement, the Fed noted that America's economy 'has made progress" towards its goals toward "maximum employment and inflation has risen to 2% and is on track to moderately exceed 2% for some time". Therefore, "the Committee judges that a moderation in the pace of asset purchases may soon be warranted".

Risk assets rallied and the CBOE VIX index - the fear gauge - dropped from a four-month high of reading of 25.7 just before the Fed meet to 20.9. It's currently at 18.6.

To be sure, the Fed's announcement came simultaneous with the seeming resolution of Evergrande's - China's second biggest property developer - debt problems. Then again, the Fed was never worried about it. In his press conference, chair Jerome Powell intimated that: "In terms of the implications for us, there isn't, there's not a direct United States exposure. The big Chinese banks are not tremendously exposed."

But with the Fed poised to start reducing its asset purchases as early as November this year and with the September dot plot showing that nine of 18 FOMC participants expect the fed funds rate to increase in 2022 - up from only seven in the June 2021 meeting - financial markets should have been scared, very scared.

Then again, methinks the bulls have it. The Fed's September 'Economic Projections' provide the rationale and the justification for the Fed's planned action.

While the Fed expects 2021 economic growth to slow to 5.9% in 2021 from the 7.0% it forecast three months earlier, it now expects GDP to expand faster next year (3.8% versus 3.3% predicted three months before) and in 2023 (2.5% versus 2.4%). Similarly, the Fed predicts the unemployment rate to be higher this year (4.8% from 4.5%) before declining to 3.8% next year and 3.5% in 2023 - both unchanged from its June forecasts. The same with PCE inflation - expected to rise by 4.2% in 2021 (from 3.4% projected in June 2021) before slowing to 2.2% (from 2.1%) in 2022 and 2.2% (unchanged) in 2023.

These economic projections take into account the Fed's forecast for the fed funds rate to increase to 0.3% next year (from 0.1% assumed in June 2021) and to 1.0% in 2023 (from 0.6%) and, of course, continued tapering that markets expect will start in November this year.

A rosy narrative. But as the Fed admits, "the risks to the economic outlook remain".

For sure and for certain, the Fed would be more than willing to change course should 'Murphy's Law' prevail.

Powell wouldn't want to go out with disastrous policy prescription for America - and the world - would he?  His term expires in February next year.

The Reserve Bank of Australia (RBA) is concerned but not alarmed at the growing cases of Delta variant infections that's wreaking havoc on the lives and livelihood in Australia's two biggest states - New South Wales (NSW) and Victoria (VIC).

This is underscored by the Australian central bank's decision at its September 7 meeting to "maintain the cash rate target at 10 basis points and the interest rate on Exchange Settlement balances of 0%; maintain the target of 10 basis points for the April 2024 Australian Government bond; purchase government securities at the rate of $4 billion a week and to continue the purchases at this rate until at least mid February 2022."

The third point wrong-footed more than half (62.5%) of economists surveyed by Bloomberg that expected "the Reserve Bank of Australia will defer scaling back quantitative easing".

It's a brave and bold move but all the same, a good one. This is because delaying "taper" would convey a sense of panic from the RBA that, in turn, would set a vicious cycle of weaker consumer confidence and spending, reduced business revenues and profits and therefore, delayed and/or decreased investment in plants, machineries and staffing and so on.

By proceeding as planned, the RBA implies that, "this too shall pass". To wit: "Prior to the Delta outbreak the Australian economy had considerable momentum ... Business investment was picking up and the labour market had strengthened. The unemployment rate had fallen below 5% and job vacancies were at a high level."

"The recovery in the Australian economy has, however, been interrupted by the Delta outbreak and the associated restrictions on activity. GDP is expected to decline materially in the September quarter and the unemployment rate will move higher over coming months.

"This setback to the economic expansion is expected to be only temporary. The Delta outbreak is expected to delay, but not derail, the recovery. As vaccination rates increase further and restrictions are eased, the economy should bounce back. There is, however, uncertainty about the timing and pace of this bounce-back and it is likely to be slower than that earlier in the year. Much will depend on the health situation and the easing of restrictions on activity. In our central scenario, the economy will be growing again in the December quarter and is expected to be back around its pre-Delta path in the second half of next year."

That's about as clear as any central banker could put it. This is also a clear departure from former US Federal Reserve chair Alan Greenspan's double talk. Recall his words way back when: "I know that you believe you understand what you think I said, but I'm not sure you realize that what you heard is not what I meant."

There's no guessing over the the RBA's statement. It's as transparent as transparent can be.

"The board's decision to extend the bond purchases at $4 billion a week until at least February 2022 reflects the delay in the economic recovery and the increased uncertainty associated with the Delta outbreak. The board will continue to review the bond purchase program in light of economic conditions and the health situation, and their implications for the expected progress towards full employment and the inflation target," it said.

"It will not increase the cash rate until actual inflation is sustainably within the 2 to 3% target range."

The Australian Bureau of Statistics (ABS) released its "National Accounts" report for the June 2021 quarter, and it was good... nay, it was great!

The report showed the economy grew by a better-than-expected 0.7% in the second quarter of the year, taking Australia's annual GDP growth rate up, up (and away) to 9.6% -- the highest year-on-year growth rate on record (1960s is all I have).

Australia is up there with the big boys. The June quarter's annual growth rate is faster than China's 7.9% score and Japan's 7.6%. While it's below that of the US (12.2%), the Eurozone (13.7%) or the UK (22.2%), these economies suffered deeper and/or longer contractions than the land down under.

But it's akin to a death row inmate being given a sumptuous meal before their execution.

This is perhaps a bit extreme; Treasurer Josh Frydenberg stated the same in a more politically-correct tone: "Today's economic numbers showed that we had seen solid growth over the June quarter, that our economy is strong, our economy is resilient, and our economy will bounce back strongly once restrictions start to ease."

"Today's national account numbers do not change the fact that our economy has some very difficult days ahead."

True that. This is because these "wonderful set of numbers" tracked the Australian economy before the Delta variant ran rampant, particularly in the states of New South Wales (NSW) and Victoria (VIC) that has prompted hard lockdowns there. NSW recorded 1288 new cases of infections (the biggest daily increase in infections since the coronavirus outbreak, so far) and VIC 176 new infections (also the highest, so far) on the same day the "great" economic growth data was released.

Infections have continued to multiply in these two states since then, forcing their respective governments away from elimination policies and towards increased vaccination to reach herd immunity.

The Delta variant outbreak is now expected to cause a contraction in the Australian economy in the third quarter.

This is now compounded by China's recent act to punish Canberra which could tip Australia into a double-dip recession. Beijing's cutting down on steel production. The National Bureau of Statistics (NBS) figures show that China's steel output fell to a 15-month low in July. Chinese steel production fell by 8.4%. With the Politburo "dictating" that steel mills ensure their 2021 steel production doesn't exceed that of 2020, "Analysts estimate output will need to fall ~12% from August through December to meet China's 2021 target". (Factset).

More worrying, the Global Times reported that: "China's steel shipments to Australia have dwindled by more than 50 percent in recent months, faster than the country's overall steel export plunge, and the trend is set to further accelerate, as China takes more measures to cut output and restrict exports..."

This is already impacting iron ore prices - Australia's biggest resource export. After reaching an all-time high of US$219.77/tonne in late July this year, prices have collapsed by 27.5% to US$159.25/tonne by the end of August.

Further declines in Chinese steel output and, by extension, demand for iron ore should see further weakness in iron ore prices.

All talk and still no taper (yet).

Along with the declaration of "mission accomplished" in the planet's war against the COVID-19 pandemic, the Fed's annual Kansas City Fed's Jackson Hole symposium is the most widely anticipated event of this year.

The mountain resort in Wyoming had, after all, been the staging ground for some momentous monetary policy shifts by the US Federal Reserve.

Only last - when the war against the pandemic began - the Fed announced a change in its monetary policy strategy at the same symposium. Because of the rising rates of infections at the time, the symposium was, for the first time in history, held virtually.

On 27 August 2020 at the Hole, US Federal Reserve chair Jerome Powell virtually buried the Philips Curve - the inverse correlation between inflation and the unemployment rate - by announcing that henceforth, the Fed is switching from a point target of 2% inflation to achieving "achieve inflation that averages 2% over time. Therefore, following periods when inflation has been running below 2%, appropriate monetary policy will likely aim to achieve inflation moderately above 2% for some time".

Powell's also killed off NAIRU - the non-accelerating inflation rate of unemployment (or "u-star") because of the "muted responsiveness of inflation to labor market tightness".

In Jackson Hole 2021, Powell hinted that QE could be reduced this year, saying: "I was of the view, as were most participants, that if the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year."

This is in reference to the US$120bn in monthly asset purchases -- at least US$80bn in Treasury securities per month and at least US$40bn in agency mortgage-backed securities per month - the Fed has been making to support the US economic recovery.

All good ... "if the economy evolved broadly as anticipated".

"The outlook for the labor market has brightened considerably in recent months ... These favourable conditions for job seekers should help the economy cover the considerable remaining ground to reach maximum employment," he said.

"The rapid reopening of the economy has brought a sharp run-up in inflation. Over the 12 months through July, measures of headline and core personal consumption expenditures inflation have run at 4.2% and 3.6%, respectively-well above our 2% longer-run objective. ... Inflation at these levels is, of course, a cause for concern. But that concern is tempered by a number of factors that suggest that these elevated readings are likely to prove temporary."

"To sum up, the baseline outlook is for continued progress toward maximum employment, with inflation returning to levels consistent with our goal of inflation averaging 2% over time."

Then again, the fact that this Jackson Hole 2021 was again held virtually - due to rising Delta variant infections -- instead of the original plan for an in-person tete-a-tete says a great deal about the states of the economy and health the world still finds itself -- much more than digesting, dissecting and analysing Fed chair Powell's missive.

Of course, Powell's insights and thoughts make a song - because any decision the Fed makes based on this insight will reverberate around the world - but the underlying message is that while the US is thinking about tapering, "the Delta variant presents a near-term risk".

We, Australians all, are experiencing that the hard way. The recent outbreak of the Delta variant has not only prompted forecasts of a third quarter contraction in economic growth but speculations of a double-dip recession as well.

The continued spread of the Delta variant in most parts of the world - even in New Zealand despite being locked down after only one case - and reduced vaccine efficacy - as demonstrated by the rise in infections in Israel (one of the very first country on Planet Earth to fully vaccinate its citizens) - remained the fear du jour for financial markets everywhere.

In a sentence: Increased infections lead to lockdowns lead to reduced social and business activity lead to weaker economic growth.

Add to this, geopolitical concerns over the "fall of Afghanistan", slowing growth in China and regulatory crackdowns there, and the can't win thought of the Fed making a policy mistake - it leaves policy too easy for long that it'll have to go hard when "transitory" inflation becomes more entrenched - and the likelihood that the Fed talking about talking tapering becomes actual tapering.

Financial markets could be forgiven for taking risk off the table. As they did last week. Equity markets dropped. So did bond yields and commodity prices. The US dollar rose against major currencies, except for the safe haven Japanese yen and the safe haven commodity, gold.

While there was good news on Australia's labour market, business and consumer sentiment indicators suggest this wouldn't last long.

The economy added 2,200 jobs in July - paltry, but a great deal more than consensus expectations for job losses of 46,200. The unemployment rate fell from 4.9% in June to 4.6% in July. This is the ninth consecutive month of declining rate of joblessness, the lowest reading in 13 years and, also, better than expectations for an increase to 5.0%.

Extended and tightened lockdown restrictions imply that the drop in business confidence -- down by 19 points to a reading of minus 8 points in July from plus 11 points in the previous month - and that of the consumer - down by 4.4% to an 11-month low reading of 104.1 in August - would take their toll on the labour market.

But as the saying goes, "those who don't remember the past are doomed to repeat it". That's meant to be a warning, a negative take for you, I and Irene to learn from history.

Then again, the history of the virtual freezing of economic activity and the recession it created was what prompted world governments and central banks to implement accommodative monetary and fiscal policies. The ones that sent stock markets soaring to new heights.

While concerns are building that central bank - the Fed especially - are behind the eight ball in terms of reining in inflation (because monetary operates with a lag), the drag on growth caused by the resurgence of infections (and the reduced efficacy of the vaccines) would also put downward pressure on inflation.

The world's biggest central banks have already told us that whatever inflation there is and will be are likely to be transitory. The drag on growth from Delta not only makes this statement a verity but it could also take inflation measures down even lower from the "distorted" spike we've witnessed so far this year.

Japan's back in deflation, consumer prices in the US and the Eurozone and the UK have eased and has stabilised in China.

Bottom line: Despite world central banks' desire to return policy to normality, they're hamstrung until the coronavirus and its variants becomes history.

The reduction in inflationary pressures that this causes gives central banks scope to maintain accommodative policy settings.

I prefer a more organic, virus-free growth setting but hey, I wouldn't stand in the way of the flood of money - monetary and fiscal - that I expect to continue until the world returns to pre-covid-19 normal.

The Delta variant and its seeming immunity to lockdowns and extended lockdowns continue to dominate attention in Australia.

Last week, the state of New South Wales (NSW) announced stricter and broader (into regions) of restrictions; the Australian Capital Territory (ACT) locked down after registering its first cases of infections in more than a hundred days, and; the extended lockdown in Victoria's (VIC) is expected to be extended anew.

Private sector economists and the Reserve Bank of Australia (RBA) have already penciled in a contraction in Australian third quarter GDP even before the restrictions were extended and broadened. How long these go on for will decide how deep the contraction will be.

The lockdowns have already taken a significant toll on business and consumer confidence.

The latest NAB Business Survey shows that both business confidence and conditions plunged in the month of July.

Australian business confidence dropped by 19 points to a reading of minus 8 points from plus 11 points in the previous month.

Business conditions declined by 14 points to a reading of plus 11 - more than half the previous months score of plus 25 - with conditions falling in "all mainland states", led by NSW.

Its components - trading (12 in July versus 32 in June); profitability (6 versus 25); employment (10 versus 18) - all weakened.

This may not be the end of it for as NAB revealed, "This July Survey was conducted between July 20 and July 30. Over this period, NSW remained locked down, SA underwent a short 7-day lockdown and Victoria had opened up - but saw a significant period of June in lockdown". All before the implementation of tighter and broader restrictions.

More so given the results of the more up-to-date consumer sentiment survey. Conducted in the week from 2 August to 7 August, the Westpac-Melbourne Institute index of consumer sentiment fell by 4.4% to a reading of 104.1 in August from 108.8 in July. This is the lowest reading in 11 months and a sharp 12.4% decline from the 12-year high of 118.8 recorded in April this year - before the government went "soft hearted" and gave in to to pressure of allowing the repatriation of 6000 stranded Australians per week back home. This was later cut back to 3000 per week.

But too late now.

Going back to the point, All of the consumer sentiment index's components fell in the latest survey: The economic conditions in the next 12 months (-8.3% to 100.4), the family finances economic conditions in the next 12 months (-2.7% to 107.0), the family finances vs a year ago (-1.9% to 91.9), the economic conditions in the next 5 years (-1.2% to 109.2), and time to buy a major household item (-7.2% to 112.0). And consistent with the NAB's employment conditions findings, unemployment expectations jumped sharply (13.7% to 124.6).

The longer the lockdown, the longer the pessimism among Australian consumers. This, in turn, will have a self-feeding impact on consumer spending, business confidence and spending and a round trip back to further dents in consumer confidence.

The RBA, in its last message, rightly stated that: "The experience to date has been that once virus outbreaks are contained, the economy bounces back quickly."

Question is, how long before the virus is contained?

At the conclusion of its August board meeting, the Reserve Bank of Australia (RBA) announced its decision to:

• maintain the cash rate target at 10 basis points and the interest rate on Exchange Settlement balances of 0%
• maintain the target of 10 basis points for the April 2024 Australian government bond
• continue to purchase government securities at the rate of $5 billion a week until early September and then $4 billion a week until at least mid November.

That's to read, "steady as she goes", wrong-footing speculations that it would, at the very least, postpone the reduction of its government bond purchases after "early September" (see third bullet point).

RBA governor Philip Lowe and Co.'s decision was backed by their rosy outlook on the economy despite the recent outbreak of the Delta variant in Australia's three biggest states - New South Wales, Victoria and Queensland.

"The economic recovery in Australia has been stronger than was earlier expected. The recent outbreaks of the virus are, however, interrupting the recovery and GDP is expected to decline in the September quarter. The experience to date has been that once virus outbreaks are contained, the economy bounces back quickly. Prior to the current virus outbreaks, the Australian economy had considerable momentum and it is still expected to grow strongly again next year. The economy is benefiting from significant additional policy support and the vaccination program will also assist with the recovery."

In plain English, the Delta variant's disruption to Australia's economic recovery is just a temporary inconvenience - a contraction in third quarter GDP - before it gets back on track in the December 2021 quarter.

There were good news in the US labour market. The Bureau of Labor Statistics (BLS) reported that non-farm payrolls grew by 943K in July. This is the biggest addition to employment in 11 months and greater than market expectations for a gain of 870K. Also good, employment figures for the previous two months were revised upwards by a total of 119K - 31K in May and 88K in June.

The US unemployment rate dropped from 5.9% in June to 5.4% in July - better than market expectations for a decline to 5.7%. This is the lowest level since March 2020 (4.4%) and a signifiant improvement from the covid-19 pandemic high of 14.8% recorded in April last year.

The reopening of the US economy (mainly due to increased vaccinations) have improved demand for workers. This is underscored by the sharp 380K increase in employment in the leisure and hospitality industries over the month.

However, the better-than-expected employment report comes alongside concerning news over the resurgence of coronavirus infections in America. Worldometer.com data shows that cases of new infections rose to a six-month high of 131K last week. Anthony Fauci -- director of the US National Institute of Allergy and Infectious Diseases and the chief medical advisor to the president - warned that cases may double in the coming weeks to around 200K per day.

The strong and strengthening US labour market certainly bolsters Fed tapering talks but the fast spreading Delata variant could still upend the recovery.

In its 28 July FOMC statement, the Fed itself noted that, "The path of the economy continues to depend on the course of the virus. Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain".

In Japan, it was all about the Olympics of course. To be able to proceed with the world games in these abnormal times was an achievement in itself. The "thrill of victory".

"The agony of defeat". Athletes from around the world are bringing home medals, pride and experiences from the Tokyo Olympics, but it's the coronavirus that's the overall winner. Worlometer.com data reveal that daily cases of infections in Japan were around 5,500 when the Games began on the 23rd of July. A day before he closing ceremony on the 8th of August, that number has multiplied to more than 15,000.

Not only has the spectator-free games limited the boost to the economy from Olympic-related spending, the growing cases of infections in the country suggest more downside when all Olympic-associated delegations and personnel exits Japan.

This isn't helped by falling wages. Growth in Japan's nominal average wages decline by 0.1% in the year to June - a big miss to expectations for 1.1% gain and a sharp fall from the previous month's 1.9% year-on-year gain. Similarly, real wages growth fell by 0.4% over the same period from 2.0% in May and versus expectations for a 1.2% increase.

Less income equals reduced spending.  June household spending dropped by 5.1% in the year to June versus 11.6% in te preceding month and expectations for a small 0.1% increase.

Japanese prime minister Yoshihide Suga's administration and the Bank of Japan's (BOJ) need to something and soon.

More so, given the technical revisions in Japan's inflation measure. As a result of changing the base from 2015 to 2020, Japan's +0.2% annual headline and core inflation rates in June has turned into negative 0.5%.

The Delta variant outbreak continues to dominate headlines in Australia. Cases of infections in the states of Victoria and South Australia were brought under control and restrictions eased. However, the outbreak in Greater Sydney continued to worsened, prompting the extension of the lockdown in the state by another four weeks. Queensland went into a three-day lockdown starting at 4pm on Saturday, after the state recorded six new locally acquired cases of COVID-19 --  taking the total number of infections to nine.

In terms of economic stats, we learned how much consumer prices rose in the March quarter.

Because of Australia's quarterly CPI reporting convention - versus monthly in most of its counterparts - we suspected and felt, but didn't know by how much, that the prices of consumer goods and services have gone up... until now.

Figures from the Australian Bureau of Statistics (ABS) show that the country's annual headline inflation rate spiked to 3.8% in June from 1.1% in the March quarter. That's above the upper limit of the Reserve Bank of Australia's (RBA) 2%-3% target band.

This was the fastest rate of increase in overall consumer prices since the 5.0% year-on-year jump in the CPI in the third quarter of 2008. But before you think that the days of historic low interest rates are over, think again.

According to the ABS: "The increase in annual CPI inflation includes some 'base effects' following the introduction of free child care and a record fall in fuel prices in the June 2020 quarter."

In addition, these "distortions" aside, the underlying measures of Australian inflation remain below the RBA's target band. The trimmed mean annual CPI inflation measure accelerated to 1.6% in the June quarter from 1.1% in the previous one. The weighted median CPI inflation sped up to 1.7% from 1.3%.

The advance estimate of US GDP growth and the Fed's July FOMC meeting took centre stage last week.

The US Bureau of Economic Analysis (BEA) reported that the country's GDP growth increased at an annualised rate of 6.5% in the second quarter. This represents an acceleration from the first quarter's 6.3% rate but was well-below market predictions for an acceleration to 8.5%.

The Fed announced no change in in monetary policy on the same day (29 July) the GDP growth figures were released. However, the US central bank hinted that it could start "tapering" asset purchases soon because "the economy has made progress toward these goals [employment and inflation] despite the resurgence of infections and "vaccination fatigue" in the country.

It's still early days. But so far, the UK's 'Freedom Day' (July 19) is travelling well. Worldometer.com figures show that rates of infections in the UK continues to slow.

There were 31,117 new cases reported as of July 29 - down from 39,359 on 'Freedom Day' and the six-month high of 54,183 new cases recorded two days earlier (July 17).

The British government's confidence that it's on top of the virus challenge is further underscored by its subsequent easing of international border restrictions.

The Delta variant outbreak remained the focus of attention in Australia. The daily case of infections in Greater Sydney surged to 136 on Friday (July 23) - the highest number since the this year's outbreak - prompting the NSW premier Gladys Berejiklian to announce the extension and expansion of the lockdown.

Across the border, declining rates of infections in Victoria and South Australia lifted hopes that restrictions would be eased as soon as this week.

Federal Treasurer Josh Frydenberg estimates that the NSW lockdown is costing the economy $700 million a week. Some estimate a hit to the economy of up to $1 billion weekly. Both agree that the longer the lockdown, the higher the probability that Australian GDP would contract in the September quarter.

The uncertainty created by the Delta outbreak rendered the minutes of the RBA's July meeting outdated. The optimistic narrative painted by the RBA at the meeting led markets to anticipate that it would further QE at its November policy review. Not anymore.

Offshore, the European Central Bank (ECB) took centre stage last week. While it preserved the status quo on monetary at the conclusion of its 22 July meeting, it changed its its forward guidance. In line with its new monetary policy strategy - symmetric 2% inflation target - the ECB wouldn't be in a rush raise interest rates as soon as inflation reach two percent

The ECB's latest move is in line with its objective of "anchoring the recovery". As ECB president Christine Lagarde declared in June: "We have to take the economy through the pandemic and into a recovery phase, which has now started. We need to really anchor the recovery."

In Asia, the Tokyo Olympics commenced as scheduled. This, despite the city recording 1979 new infections - the highest since the 2044 cases recorded in January this year -- a day before the opening ceremonies. In addition, games organisers report that a total of 123 people linked to the games had been infected since the start of July.

Despite being spectator-free, there are fears that the games could become a super-spreader event, with daily infections estimated to soar around 2600 by early next month.

The Delta variant that's doing the rounds in Greater Sydney crossed the Victorian border last week - prompting a five-day lockdown in the state at about the same time that NSW imposed tighter restrictions.

Previous to this and conducted "through the period of rising cases in NSW and the early part of the subsequent lockdowns both there and in other states", the latest NAB business survey revealed both conditions and confidence taking a hit.

Business confidence nearly halved to +11 in June from +20 in May. Business conditions dropped to a reading of +24 in June from +36 in May, with trading, profitability and employment recording sharp declines.

But consumer confidence told a different story. The Westpac-Melbourne Institute index of consumer sentiment went up by 1.5% to 108.8 in July from 107.2 in June. This, despite the survey being conducted during the greater Sydney lockdown. Westpac points out that: "The main takeaway is that concerns around the current virus outbreak and associated restrictions in NSW are not spilling over to the rest of the country."

This could also be because Australia is facing the latest hurdle from a position of strength.

The Australian Bureau of Statistics (ABS) reports that the country's unemployment rate dropped to an 11-year low of 4.9% in June - below the March 2020's (when the pandemic and lockdowns began) 5.3% and the eight-consecutive month of decline in the jobless rate.

Overseas, the biggest market mover was the faster-than-expected jump in US CPI inflation measures. Overall consumer prices surged by 5.4% in the year to June - the highest since an equal rate in August 2008. Core CPI inflation jumped by 4.5% over the same period - the fastest rate since November 1991.

Although many put the rise and rise in consumer prices to base effects - low prices compared to the same time last year - it has also raised doubts over the Fed's ongoing missive that the pick-up in measured inflation is "transitory".

More so given the latest indications from the University of Michigan consumer sentiment where Richard Curtin - survey director - noted that: "Consumers' complaints about rising prices on homes, vehicles, and household durables has reached an all-time record."

The latest survey revealed that one-year inflation expectations soared to a preliminary reading of 4.8% in the first half of July from June's final reading of 4.2%. Five-year inflation expectations climbed to 2.9% from 2.8%.

Higher expected inflation - that could pressure into slowing/halting policy stimulation - sent consumer sentiment down from June's final reading of 85.5 to a preliminary score of 80.8 in early July - the lowest since February this year and disappointing expectations for a pick-up to 86.5.

Then again, the drop in consumer sentiment could slow consumer spending - which accounts for more than 60% of the US economy - easing inflation pressure and ultimately, allow the Fed to maintain policy accommodation.

At its July 6 meeting, the Reserve Bank of Australia (RBA) kept the cash rate unchanged at 0.1% and retained the April 2024 bond as "the bond for the yield target" - against speculation that it would roll this over to the November 2024 bond. At the same time, it scaled back its $5 billion weekly bond purchase program to $4 billion a week until at least mid-November this year.

This is in line with its view that the stronger-than-expected recovery in the domestic economy would continue and that, it would bounce back quickly once the recent outbreaks are contained and restrictions eased. Having said that, it's looking likely that Sydney's lockdowns will be extended.

The RBA explained its QE taper thus: "The bond purchase program is playing an important role in supporting the Australian economy. The bank will continue to purchase bonds given that we remain some distance from the inflation and employment objectives. However, the board is responding to the stronger-than-expected economic recovery and the improved outlook by adjusting the weekly amount purchased."

In the US, market action was dominated by the rally in the bond market reflecting concerns that the American economy has reached "peak growth" and therefore, "peak inflation. The yield on 10-year US Treasuries dropped to a near-five-month low of 1.29% before closing at 1.35% at the end of last week - down from this year's high of 1.74% recorded at the end of March.

IHS Markit's US PMI survey supported concerns that the economy has reached its peaked. While still at a reading indicating expansion, the composite PMI slowed to a lower than expected 63.7 in June from 68.7 in the previous month. The services PMI weakened to 64.6 from 70.4 in May while the manufacturing PMI was unchanged at 62.1 (although it slipped from the preliminary reading of 62.6).

This is consistent with the decline in the ISM non-manufacturing index to a reading of 60.1 in June from 64.0 in May. The report showed that non-manufacturing business activity (60.4 versus 66.2), new orders (62.1 versus 63.9) fell with employment dropping to 49.3 indicating contraction in June from 55.3 in the previous month.

Anxiety over "peak growth- peak inflation" were further stoke by developments in China. The State Council, chaired by Premier Li Keqiang, released a statement hinting at a reduction in the country's required reserve ratio (RRR).

"Given the impact of higher commodity prices on business production and operation, the meeting decided to maintain the stability of the monetary policy and enhance its effectiveness, without resorting to massive stimulus," he said.

"Cuts in the required reserve ratio and other policy tools will be introduced as appropriate, to intensify financial support for the real economy, especially micro, small and medium-sized businesses, and promote steady decrease of overall financing costs."

The statement suggests that China's economic recovery may be weakening, supported by recent PMI surveys. The Caixin China general composite PMI fell from 53.8 in May to 50.6 in June -- the lowest reading since April 2020, with private sector activity in both the manufacturing (51.3 from 52.0) and services sectors (50.3 from 55.1) slowing.

In Japan, the government has succumbed to the increasing rate of coronavirus infections, particularly in Tokyo. It declared a state of emergency for Tokyo until August 22 -- spanning the duration of the summer Olympics - to curb the resurgence in infections but effectively banning spectators at the games.

In Europe, concerns over the Delta variant are increasing prompting some regions in Spain to reintroduce measures to curtail infections.  France and Germany advised precautions when travelling to Spain. The UK, in turn, is proceeding to lift restrictions as planned on July 19.

The European Central Bank (ECB) released its new monetary policy strategy - resulting from the review launched in January 2020. Under the new strategy, the ECB will adopt a symmetric inflation target over the medium term.

"The Governing Council considers that price stability is best maintained by aiming for a 2% inflation target over the medium term. This target is symmetric, meaning negative and positive deviations of inflation from the target are equally undesirable. When the economy is operating close to the lower bound on nominal interest rates, it requires especially forceful or persistent monetary policy action to avoid negative deviations from the inflation target becoming entrenched. This may also imply a transitory period in which inflation is moderately above target," the ECB said.

Australian economic and survey releases over the past week continued to paint a picture of a strengthening recovery. However, the rosy results preceded the outbreak of the Delta variant that prompted lockdowns and/or tightened restrictions in major cities and select localities in the country, as well as border closures among states.

Total private sector credit growth accelerated to 1.9% in the year to May from 1.3% in the previous month. Business credit growth improved from an annual rate of minus 3.0% to minus 2.0% in May. Personal credit was also better in May (-6.4% from -7.8%) while growth in housing credit quickened to an annual rate of 4.8% in May (from 4.4% in April) with both owner-occupied housing (6.6% vs. 6.2%) and investment housing (1.6% vs. 1.1%) picking up pace.

This makes the continued rise in house prices hardly surprising. CoreLogic's "5 capital cities aggregate" home value index rose by 1.9% over the month of June and by 12.1% year-on-year. Home values in Hobart registered the biggest increase (3.0%) in the June month, followed by Sydney (2.6%), Canberra (2.4%), Brisbane (1.9%), Adelaide (1.6%), Melbourne (1.5%), Darwin (0.8%) and Perth (0.2%).

The AiG Performance of Manufacturing index rose to a new series high of 63.2 points in June for its ninth straight month of above-50 reading indicating expansion. All seven activity indicators registered readings indicating expansion. This contrasts with the IHS Markit Australia manufacturing survey that showed the PMI easing to 58.6 in June due mainly to the Victorian lockdown. Then again, the June result followed May's record high reading of 60.4 in May and was the 12th straight month of expansion in Australia's manufacturing sector.

All eyes will be on the RBA's board meeting this week (July 6). Recall that at its meeting in May, it announced that: "At its July meeting, the Board will consider whether to retain the April 2024 bond as the target bond for the 3-year yield target or to shift to the next maturity, the November 2024 bond. The Board is not considering a change to the target of 10 basis points. At the July meeting, the Board will also consider future bond purchases following the completion of the second $100 billion of purchases under the government bond purchase program in September."

In the US, the much-anticipated non-farm payrolls report was released at the end of the week. US businesses hired a total of 850,000 workers in June following a 583,000 gain in the previous month. This is higher than consensus expectations for a 700,000 gain and followed back-to-back lower-than-expected results in April and May. The unemployment rate inched up to 5.9% in June from the 14-month low of 5.8% recorded in May.

In the Eurozone, the IHS Markit Eurozone Manufacturing PMI rose from 63.1 in May to a new record high of 63.4 in June 2021 - the 12th straight month of expansion. However, rising cases of Delta variant infections had markets concerned over increased restrictions or delayed reopening.

These affirm ECB president Lagarde's view that the economy while starting to rebound, it remains fragile. Similarly, flash estimates of Eurozone inflation - core inflation eased to 0.9% in June form 1.0% in May; headline inflation slowed to 1.9% from 2.0% -- give that meat to Madam Lagarde's expectation that medium-term inflation will stabilise below the ECB's target.

In Japan, cases of coronavirus infections continue to rise, and the government is reportedly going to extend containment measures for another two weeks to (July 15) - about a week before the Olympics.

Latest data suggest that China's economy continues to slow. The National Bureau of Statistics (NBS) reports that the manufacturing PMI dipped to a reading of 50.9 in June from 51.0 in May while the non-manufacturing PMI fell to a four-month low of 53.5 in June from 55.2 in the previous month. Still, China's manufacturing sector had been consistently in expansion since March last year, so too with its non-manufacturing industry.

The FIRB approved a total of 7496 applications for the purchase of commercial and residential properties in 2019-20 - down 6.3% from the previous fiscal year - undoubtedly impacted by the closure of Australia's international borders.

This led to a corresponding 36.3% drop in the value of total foreign investment in Australian commercial and residential properties in 2019-20. Still, the total $55.9 billion spent on buying up Australian real estate adds to the flood of money that's sending property prices sky high.

The US led foreign property buyers with A$13.1 billion worth, accounting for 23.4% of total investment in Australia's commercial and residential properties, followed by Singapore's A$9.5 billion (17.1%) and mainland China's A$7.1 billion (12.7%).

However, as a percentage of total foreign investments into Australia - that includes agriculture, finance & insurance, manufacturing, electricity & gas, mineral exploration & development, real estate and services - China has allocated more into the purchase of property, 55.8% of its total direct investment. This is more than double America's allocation of 26.6% of total over the 2019-20 financial year.

The FIRB annual report shows that while the value of foreign purchases of commercial property dropped by 46.8% in 2019-20 from the previous financial year, the value of residential real estate buying increased by 15.4% over the same period.

Commercial property purchased by foreign nationals declined both in number - 440 approvals - and value - A$38.8 billion - compared with the 487 approvals worth A$73.0 billion in 2018-19.

New South Wales received the bulk of foreign inflows into commercial property (11.1%) followed by Victoria (3.98%) and Queensland (2.9%).

The FIRB approved a total of 7056 residential property applications in 2019-20 - 6.3% less compared with the previous financial year - but the total amount has increased by A$2.3 billion to A$17.1 billion.

Victoria received the lion's share of foreign residential property purchases (43%) followed by New South Wales and Queensland with 19% each.

The FIRB breaks down investments in residential property into "established residential dwellings" and "for development".

The board approved a total of 1101 applications for purchase of established residential dwellings in 2019-20 (down from 1,312 in 2018-19) worth A$4.5 billion in 2019 (up from A$1.7 billion).

In 2019-20, the FIRB approved 5660 applications for residential property development - 6.8% lower compared with the previous financial year's tally of 6072 - amounting to A$12.1 billion from A$12.9 billion in 2018-19.

The FIRB's approvals of residential property new development is part of its policy to encourage investment in the sector aimed at increasing the supply of new houses and thus, relieve escalating house prices.

But demand for residential property continues to grow faster, underpinned by the faster than expected economic recovery that's underscored by the improvement in the domestic labour market and the Reserve Bank of Australia's (RBA) continued accommodative monetary policy.

Only a few days after the Reserve Bank of Australia (RBA) kept monetary policy settings unchanged and repeated its assurance that interest rates will remain at the record low 0.1% "until 2024 at the earliest", three of Australia's 'Big Four' banks released forecasts that are at odds with the central bank.

Commonwealth Bank predicted that the RBA would lift interest rates by late-2022; Westpac by early-2023; the ANZ expects two hikes - one in mid-2023 and another by the end of that year. Only NAB agreed with the RBA's assurance.

Given the stronger than expected recovery in the Australian economy, the 'Big Four minus one' have very good reasons for their earlier than promised tightening.

The Australian Bureau of Statistics' (ABS) 'National Accounts' show the Australian economy expanded by 1.8% in the March 2021 quarter - the third consecutive quarter of growth since the pandemic-induced recession in the March and June quarters of 2020 - taking the annual growth in GDP up to 1.1% and national output above the level it was before the coronavirus struck.

Australia's labour market stats indicate that economic growth will continue to progress going forward. Employment increased by 115,200 in May - way above consensus expectations for a 30,000 gain and more than offsetting the 30,600 lost in the previous month and was 1.0% more in May 2021 than the start of the pandemic. The unemployment rate dropped to 5.1% in May - the seventh straight month of decline -- from 5.5% in April and 5.3% in March 2020 when lockdowns started.

Record or near-record high business conditions and confidence and above-average consumer confidence readings point that Australia's good fortune will continue rolling.

That was before the Delta variant broke out and now it's toilet paper that is, once again, rolling off supermarket shelves - a leading indicator of expected (later turned reality) lockdowns and restrictions in the country.

Sydney and Darwin are now locked down, as are parts of Queensland and Western Australia. Meanwhile, the Australian Capital Territory (ACT) and South Australia have implemented tighter social restrictions and state border closures are again in place. Meanwhile, Tasmania is keeping a close eye on things, closing its borders to people travelling from hotspots.

Not including the restrictions in other states and territories and border closures, the lockdown in Sydney alone is estimated to cost the economy around $2 billion.

Melbourne's fourth lockdown provides a precedent. It's 14-day lockdown (starting on May 28) weakened both employment and retail spending in Victoria, before recovering as restrictions were gradually eased there.

The RBA once again proved prescient when it printed in its statement: "An important ongoing source of uncertainty is the possibility of significant outbreaks of the virus..."

The question now is how long before Australia kills the Delta variant beast.

The quasi-emergency status declared on Tokyo and six other prefectures hasn't fully run its course (it's scheduled to be lifted on July 11) and yet, Yasutoshi Nishimura - Japan's economic revitalisation minister and head of the government's coronavirus response - hinted at declaring another state of emergency.

"If necessary, we should not hesitate to declare a state of emergency and should be flexible about declaring it for areas that are currently placed under the quasi-emergency stage," he said.

This would put further downward pressure on Japan's economic growth and inflation that are still wobbling from the on-going restriction measures as captured by the latest au Jibun Bank PMI surveys.

Preliminary estimates show that Japan's composite PMI eased to a reading of 47.8 in June - the second straight month indicating contraction in private sector activity - from May's final reading of 48.8 in May and 51.0 in April.

"New orders also reduced for the second successive month, and at the fastest pace since February. Panel members commonly associated disruption to operating conditions to ongoing COVID-19 restrictions, coupled with severe supply chain pressures, notably for manufacturers," they read.

The flash manufacturing output index returned to contraction, scoring 49.1 in June from the previous months' final reading of 53.7. While the flash services business activity index has improved to a preliminary reading of 47.2 from the final reading of 46.5 recorded in May, it remained in contraction territory for the 17th month in a row.

Japan's inflation measures have improved slightly but remain far below the Bank of Japan's (BOJ) target. The headline inflation rate was better at minus 0.1% in the year to May from minus 0.4% in the previous month. The annual rate of core inflation turned into a positive 0.1% from April's minus 0.1% rate.

Still, the Bank of Japan (BOJ) remains optimistic, noting in its 17-18 June meeting that: "Although the level of Japan's economic activity, mainly in the face-to-face services sector, is expected to be lower than that prior to the pandemic for the time being, the economy is likely to recover, with the impact of COVID-19 waning gradually and supported by an increase in external demand, accommodative financial conditions, and the government's economic measures. Thereafter, as the impact subsides, it is projected to continue growing with a virtuous cycle from income to spending intensifying."

The BOJ decided to keep current monetary policy settings unchanged at the meeting but extended its pandemic relief programme by six months to the end of March 2022.

"The MPC voted unanimously to maintain Bank Rate at 0.1% ... and to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £20 billion. The Committee voted by a majority of 8-1 ... to continue with its existing programme of UK government bond purchases ... maintaining the target for the stock of these government bond purchases at £875 billion and so the total target stock of asset purchases at £895 billion," the BOE said.

Yet, the FTSE-100 index closed half a percent higher on the day - up 10.1% this year to date and up 42.4% from the pandemic low plumbed in March last year - aided by the dip in the pound sterling's exchange rate and the fall in the yield on 10-year UK bonds.

The British central bank's sanguine forward guidance underpinned these positive reactions in the financial markets.

For while the BOE upgraded its GDP growth forecast to 5.5% in the June quarter from the 4.25% estimated in May and forewarned that "CPI inflation is expected to pick up further above the target ... and is likely to exceed 3%", the BOE expects that this will be transitory as the impact of higher energy and other commodity prices recede.

UK inflation is certainly headed higher. Headline CPI inflation accelerated from an annual rate of 1.5% in April to 2.1% in May - above the 2% target and the 1.8% rate predicted in the May Report. Likewise, core inflation quickened from 1.3% to 2.0%.

But have no fear: "Financial market measures of inflation expectations suggest that the near-term strength in inflation is expected to be transitory ... because overall, there is judged to be spare capacity in aggregate in the economy at present."

The country's unemployment rate may have dropped to an eight-month low of 4.7% in the three months to April but "it is likely that labour market slack has remained higher than implied by this measure" because, "some individuals stopped looking for work during the pandemic, and were therefore recorded as inactive".

Similarly, the BOE explained away the recent acceleration in wages growth (to 5.6% in the April quarter) as due to compositional effects - i.e., more job losses among lower-paid workers - and the base effect of last year's drop in wages.

The piece de resistance?

"The MPC will continue to monitor the situation closely and will take whatever action is necessary to achieve its remit.  The Committee does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably," it said.

But looking at Australia's trade stats, one would be forgiven for believing that Beijing and Canberra have kissed and made up and let bygones be bygones.

Preliminary estimates by the Australian Bureau of Statistics (ABS) show that the country's merchandise goods trade surplus expanded to a record $13.3 billion in May from $9.7 billion in the previous month.

This was driven by a 1% increase in imports that was outpaced by an 11% surged in exports over the month led by a $2.3 billion (16%) jump in shipments to China in May - dwarfing the increase in exports to Hong Kong ($622 million) and Singapore ($133 million) combined. Exports to Japan declined in May by 4% and 11%, respectively.

China may have put limits on sundry Australian products, but it still can't live without our biggest export.

According to the ABS: "The increase in metalliferous ores to China [up 20% in May from April] was once again driven by iron ore, up $2,087m (20%) to $12,666m. This is the third consecutive record export month for both iron ore and subsequently metalliferous ores."

No prizes for guessing but Australia's having it both ways. China's - by far its biggest buyer (accounting for 43% of total exports) - increased demand for iron ore and the soaring price of Australia's biggest commodity export - continue to underpin the Lucky Country's economy.

Iron ore broke above the all-time high of US$191.70 a tonne recorded more than 10 years ago (February 2011) on the 6th of May this year and is currently fetching 213.45/tonne.

This represents a 30.2% increase from end-2020's closing price of US$163.93/tonne and a whopping 172.5% rally from the pandemic low of US$78.33/tonne plumbed on the 3 February 2020.

Certainly, China's steel production has slowed in recent months - it has slowed from an annual rate of 13.4% in April to 6.6% in May -- but this is a "base effect" function as China normalises from the distortion caused by the coronavirus pandemic. The overall trend remains on the up and up.

The China Iron and Steel Association reports that crude steel production in the January - May 2021 period had risen by 13.9% compared to the same five-month period in 2020.

Iron ore prices will remain elevated for as long as China continue to urbanise and grow which, ironically, supports the Australian economy which it wants to punish.

The National Bureau of Statistics (NBS) released retail sales, industrial production and fixed asset investment that were still stronger than usual -- as they continue to come off the low base comparisons of the previous year when the coronavirus pandemic hit, prompting the government to impose draconian lockdown measures that virtually froze social and business activity - but all the same, less than market consensus expectations.

The NBS reported that Chinese retail sales grew by 12.4% in the year to May down from 17.7% April, March's year-on-year rate of 34.2% and lower than market expectations for a 17.0% print.

The annual growth in industrial production slowed to 8.8% in May from 9.8% in the previous month, 14.1% in March and 35.1% in February. Again, this is less than market expectations for a gentle slowing to a 9.2% year-on-year rate.

Three for three. China's fixed asset investment also disappointed expectations for a 17.0% gain as its annual growth rate sequentially slowed to 15.4% in May from 19.9% in April, 25.6% in March and 35.0% in February.

But no problemo. If it were, the People's Bank of China (PBOC) would have sprung into action. But no, it left its benchmark interest rates unchanged - one-year loan prime rate at 3.85% and the five-year at 4.65% -- for the 13th straight month at its May fixing.

In addition, this is what the doctor (er, central command) ordered. At the opening of the fourth session of the 13th National People's Congress (NPC) in Beijing on the 5th of March this year, Chinese premier Li Kequiang 2021's GDP growth target of over 6%.

This compares with consensus expectations - market, the IMF and the OECD - for China's economy to grow by 8.0% this year.

The distortions wrought by the coronavirus pandemic to consumer and business behaviours and central bank and government policies make it especially difficult to assess the trend in forthcoming stats. Not to mention, the fact that the virus still lingers and the race between increased vaccinations and the virus turning into a more infectious variant.

Sure, these indicators can continue to weaken as 2021 progresses. Then again, retail sales growth has averaged 14.7% in the first five months of this year; industrial production at 15.0%; and fixed asset investment at 19.8%.

This compares with 2019's (pre-pandemic) averages of 8.1% for retail sales; 5.7% for industrial production; and 5.7% for fixed asset investment. That year, China's GDP growth expanded by 6.1%.

Australian 'men' (and women) at work' that is.

According to the Australian Bureau of Statistics' (ABS): "Employment increased by 115,000 people in May, following the 31,000 fall in April, around the Easter holiday period. Over the past two months, employment increased by around 84,000 people, and was 1% higher in May 2021 than at the start of the pandemic."

This is more than three times market expectations for a still not insignificant addition of 30,000 and disproving earlier apprehensions that around 100K-150,000 Australians would lose employment after the government's JobKeeper scheme ended in March.

My back of the envelope calculations shows that a total of 256,000 jobs have been created in the first five months of this year, more than making up for the 96,400 positions lost in 2020.

The ABS said the unemployment rate fell to 5.1%, which was below March 2020 (5.3 per cent) and back to the level in February 2020 (5.1%) - lower than expectations for an unchanged print at 5.5% and the seventh straight month of decline in the jobless rate.

Even better, this comes amid the rise in the participation rate from 65.9% in April to 66.2% in May - a whispering distance from the historic high of 66.3% recorded in March this year - itself, a positive indicator, as more jobseekers re-enter the labour force amid optimism in finding employment.

And why the heck wouldn't Australians see the glass more than half-full? Not when the NAB business survey found that business conditions rose to a fresh record high reading of +37 in May, from what were then all-time highs of +32 in April and +24 in March. More to the point, the latest NAB survey shows the "employment index" rising from 20 in April to a record high reading of 25 in May.

Not only that, despite the recent lockdown in Melbourne denting consumer confidence in June, the reading of 107.2 remains well-above its long-term average of 101.4 and is 14.5% higher than it was a year earlier. As per Westpac, "Jobs confidence' is still positive, the index was coming off its best read in a decade in May".

But, as Ella Fiztgerald sings, "into each life some rain must fall". Australia's "jobs full" recovery brings with it that horrible thought that the Reserve Bank of Australia (RBA) and/or the federal government withdrawing their policy largesse.

Que horror! Monetary and fiscal accommodation no more!

We all wish and hope and pray that everything returns to pre-pandemic normal. So, why are financial markets throwing a tantrum at mounting indications that we are on our way there?

US equities painted the board red, with all benchmark indices closing on the down low, while yields on 10-year US Treasuries went on the up and up.

This is because while the much-anticipated June FOMC meeting produced no change in the prevailing monetary policy setting - the fed funds rate at 0-0.25% and bond purchases at a rate of US$120 billion monthly - the dot plots contained in the 'Statement of Economic Projections' (SEP) imply that something sinister is coming to a theatre near us ... and soon.

The plot of the dots reveals that there are now more Federal Reserve Board members and Federal Reserve Bank presidents thinking that there would be a rate rise next year increased to seven at the June meeting (from four three months earlier) and those predicting higher interest rates by 2023 rising from seven out of 18 in March to 13 at the recently-concluded meeting - with 11 officials expecting not one, but two, hikes.

To be sure, Wall Street's reaction was mild compared with previous "tantrum" episodes. The S&P 500 index eased by only half a percent on the day and this, from the record high it set the day before. The index is still up 12.4% this year to date and by a whopping 35.2% from a year ago.

More, despite the VIX index's - the 'fear gauge' - 6.6% jump on the day, at a reading of 18.15, it's still lower than the most recent peak of 27.59 it hit on May 12 and this year's high of 37.21 recorded in late January.

Financial market participants, it seems, paid closer attention to chair Jerome Powell's words this time.

In his press conference, the Fed chief elaborated that: "As is evident in the SEP, many participants forecast that these favorable economic conditions will be met somewhat sooner than previously projected; the median projection for the appropriate level of the federal funds rate now lies above the effective lower bound in 2023."

"Of course, these projections do not represent a Committee decision or plan, and no one knows with any certainty where the economy will be a couple of years from now. More important than any forecast is the fact that, whenever liftoff comes, policy will remain highly accommodative. Reaching the conditions for liftoff will mainly signal that the recovery is strong and no longer requires holding rates near zero."

True that. The Fed's latest economic projections bear this out, upgrading this year's GDP growth to 7.0% from the 6.5% rate forecast in March, with the unemployment rate steadily improving from 4.5% this year to 3.8% in 2022 and 3.5% in 2023.

The Fed's PCE price inflation - its favoured measure - forecast that while "inflation has increased notably in recent months ... and will likely remain elevated in coming months," it's largely "transitory" and should "drop back toward our longer-run goal, and the median inflation projection falls from 3.4% this year to 2.1% next year and 2.2% in 2023".

"Of course, these projections do not represent a committee decision or plan, and no one knows with any certainty where the economy will be a couple of years from now," the Fed said.

Of course.

"The path of the economy will depend significantly on the course of the virus. Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain."

These were ECB president Christine Lagarde's answers to an interview with 'Politico' asking how long the single-currency region's fiscal and monetary policy support would remain in place.

This comes four days after the European Central Bank convened on the 10th of June and decided to maintain the status quo - keeping the interest rates unchanged on its main refinancing operations, the marginal lending facility and the deposit facility at 0.00%, 0.25% and -0.50%, respectively.

Also: "The Governing Council will continue to conduct net asset purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1,850 billion until at least the end of March 2022 and, in any case, until it judges that the coronavirus crisis phase is over".

Sure, activity and leading economic indicators in the region had significantly improved. So much so, that in its May Economic Outlook report, the OECD upgraded the Eurozone's GDP growth forecasts to 4.3% this year (from 3.6% its predicted in December 2020) and 4.4% in 2022 (from 3.3%).

Although still in contraction, Eurozone GDP growth has improved to negative 1.3% in the year to the March 2021 quarter from negative 4.7% in the previous quarter. The lead from the latest IHS Markit Eurozone PMI survey foretells continued improvement.

The IHS Markit Eurozone PMI composite index increased to a reading of 57.1 in May from 53.8 in April - the highest since February 2018 and the third straight month indicating expansion. The manufacturing sector recorded its highest level on record with a reading of 63.1 in May while the services sector rose to its highest level in nearly three years to 55.2.

Onwards and upwards the Eurozone's heading. According to Markit: "The service sector revival accompanies a booming manufacturing sector, meaning GDP should rise strongly in the second quarter. With a survey record build-up of work-in-hand to be followed by the further loosening of covid restrictions in the coming months, growth is likely to be even more impressive in the third quarter."

Not surprising, the Euro Stoxx-50 index has rallied by 16.3% this year to date and by a whopping 73.2% since the pandemic low it plumbed back in March 2020.

Then again, as Madame Lagarde pointed out, while the Eurozone's economic outlook is heading in the right direction, she's "not suggesting that the pandemic emergency purchase program (PEPP) is going to stop on March 31 [2022]".

Lagarde has improved on Draghi's "whatever it takes" to "however long it takes".

While many, if not most, of its central bank peers - led by the Fed -- are pushing back against inflation concerns, the Bank of Japan (BOJ) cannot seem to drive growth in the country's consumer prices significantly beyond zero.

In his press conference after the 27-28 April FOMC meeting, Fed Chairman Powell stated that, "Readings on inflation have increased and are likely to rise somewhat further before moderating. In the near term, 12-month measures of PCE inflation are expected to move above 2 percent ... we are also likely to see upward pressure on prices from the rebound in spending as the economy continues to reopen, particularly if supply bottlenecks limit how quickly production can respond in the near term. However, these one-time increases in prices are likely to have only transitory effects on inflation".

This is the complete opposite of the BOJ's assessment revealed in the "Summary of Opinions at the Monetary Policy Meeting on April 26 and 27, 2021", where it revealed that,

"The year-on-year rate of change in the consumer price index (CPI) is likely to be slightly negative for the time being. Thereafter, it is expected to turn positive and then increase gradually..."

To be sure, latest data show that Japanese annual headline inflation remains in deflation (-0.4% in April from -0.2% in March) - the seventh straight month of falling prices. So does core inflation. Its annual growth rate has remained negative for the nine months running to -0.1% in the year to April.

Certainly, the upward revision in Japan's March 2021 quarter GDP contraction to an annualised rate of 3.9% (from the preliminary estimate of 5.1%) is cause for optimism.

Then again, the economy shifting back into reverse, following two straight quarters of expansion, presents bad tidings for inflation and overall growth - a catch-22 situation, if you will.

Japan needs inflation to ignite consumer spending and business spending that would lift economic activity but with the economy a quarter away from another technical recession, rational expectations theory dictates that both consumers and businesses will defer expenditures, slowing overall economic growth.

More so, given recent news that wage negotiations have settled on the low side.

As per Factset, "Kyodo cited Japan Business Federation figures showing major companies have agreed on an average pay hike of 1.82% in this year's annual spring wage negotiations, falling below 2% for the time since 2013 and the slowest pace since the aftermath of the 2008 financial crisis".

Not only that, Japan's fourth coronavirus wave has prompted mister and missus Miyagi to be more frugal -- BOJ estimated pandemic has led to JPY20T in additional savings last year (Factset).

Deflated expectations would keep Japan's deflation running for some time to come.

The day was June 4 - the day the US Bureau of Labor Statistics (BLS) reported that the economy generated only 559,000 jobs in May, missing consensus expectations for the creation of 650,000 to the employment heap.

A repeat of the previous month's big disappointment -- 266,000 jobs in April (revised up to 278,000 in the latest report, well-below market expectations for a nearly one million gain (978,000 to be exact). A repeat of the 'bad news is good news' view that prevailed a month ago.

But if you read the BLS's report as diligently as a crime scene investigator, you'll find that underneath that the employment report is not as dreary as the headline numbers suggest.

According to the BLS: "In May, 7.9 million persons reported that they had been unable to work because their employer closed or lost business due to the pandemic" is "down from 9.4 million in the previous month".

Yes Virginia, there were less Americans unable to work in May than there were in April.

This is in addition to disincentivised workers. We may call them slacks but they're presenting a perfectly rational response to the current situation.

As the Wall Street Journal put it last month: "Average unemployment recipient receiving federal enhancement (which continues to September) earns above the $15/hr federal minimum wage".

It's a no-brainer. Work for US$15/hour - with all the attendant costs of working - or just eat, drink and be merry and watch Netflix 24/7 while at the same time receiving higher unemployment benefits from dear Uncle Sam, thank you very much.

There's the cheque for US$1200 per person (plus US$500 per child) issued under the CARES Act in March 2020; there's the cheque for US$600 per person (US$600 per child) announced in December 2020; there's the US$1400 per person (plus US$1400 per each dependent of all ages) signed off in March 2021.

But herein lies the rub. With the increased rate of vaccination in the country and the easing of social and business restrictions, US economic momentum has shifted another gear. Companies would need to offer wages above what staying at home drinking Budweiser and watching Netflix offer.

They're doing just that. The BLS reports that: "Average hourly earnings for all employees on private nonfarm payrolls increased by 15 cents to $30.33 in May, following an increase of 21 cents in April".

"The data for the last two months suggest that the rising demand for labor associated with the recovery from the pandemic may have put upward pressure on wages."

This spell rising inflation.

The Australian property market should adopt this as its official anthem. The property craze in this Land Down Under is best portrayed by an article in the Daily Telegraph telling the story about "a mouldy 1970s house with a leaky roof and rooms cordoned off with danger tape" selling for $1.68 million at a frantic auction attended by 16 bidders, with the buyers reportedly planning to spend another $300,000 to restore the three-bedroom house in Frenchs Forest, New South Wales.

Every Australian wants to get a piece of the action. Homebuyers want to get in before house prices get even higher and property investors are revving up purchases in anticipation of booms to come.

With interest rates at record lows and the Reserve Bank of Australia (RBA) pledging that they will remain at current levels until 2024, those who can afford to borrow are borrowing ... to the hilt before rising house prices priced them out of the market.

CoreLogic's home value index shows that the "five city capital aggregate" index increased by another 2.3% in the month of May (from April's 1.8%) to be 9.1% higher from a year earlier.

Not only that: "CoreLogic's research director Tim Lawless observes that growth conditions remained broad based both geographically and across the housing types and valuation segments".

Home values for "all dwellings" in Australia increased in all of the country's six states and two territories in May, ranging from a 3.2% month-over-month surge in Hobart to a 1.1% appreciation in Perth.

The Australian Bureau of Statistics' (ABS) 'Lending Indicators' report indicates that the country's property will get even more hot, hot, hot.

Total new housing loan commitments surged to a record high A$31.1 billion in April - up 3.7% over the month and 68.2% from the same month last year, with both owner-occupiers and investors ramping up purchases.

Owner-occupied housing loan commitments increased by 4.3% to a record high $31.1 billion in April - up 70.1% from a year ago - while loan commitments from investors went up by 3.7% month-on-month and surged by 63.0% from April 2020.

So far, the RBA has only acknowledged the rise and rise in house prices and assured that it is monitoring lending standards.

"Housing markets have strengthened further, with prices rising in all major markets. Housing credit growth has picked up, with strong demand from owner-occupiers, especially first-home buyers. There has also been increased borrowing by investors. Given the environment of rising housing prices and low interest rates, the Bank will be monitoring trends in housing borrowing carefully and it is important that lending standards are maintained," it said.

This is a green signal for continued appreciation in house prices.

This will be partially mitigated by the 11.4% drop in loan commitments for new dwellings in the month of April (following a 14.8% decline in the previous month) because "the HomeBuilder grant was reduced from $25,000 to $15,000 effective from 1 January 2021 and was closed to new applications from 14 April 2021".

But as the ABS clarified, "...the value of construction commitments remained at a high level."

The balance of supply and demand - plus the RBA's forward-guidance for another three years of low interest rates and speculation for further gains in house prices - suggest home is where the money is.

So declared Saudi Arabia's oil minister Prince Abdulaziz bin Salman as the OPEC+ group of oil producing nations met and decided to gradually increase oil production in July.

The OPEC+'s online meeting on 1 June 2021 saw oil ministers from member nations agree to raise oil production by 441,000 barrels per day (bpd) in July, with Saudi Arabia -the swing producer - adding 400,000 bpd more.

The consequent jump in crude oil prices justify the Saudi oil minister's declaration and, at the same time, the oil market's belief that the supply increase remains insufficient to meet growing demand - recently reinforced by the OECD's upgrade to global growth.

In its 'Economic Outlook, May 2021' report, the OECD upgraded its global GDP growth forecast to by 5.8% this year and by 4.4% in 2022. This compares with the 5.6% and 4.0%, respectively, it forecast in March and a sharp upgrade from the 4.2% (for 2021) and 3.7% (for 2022) predicted in its December 2020 report.

The price of Brent oil rallied to US$71.20/barrel and WTI oil soared to US$68.83 a barrel. This year to date, the price of Brent oil has surged by 41.4 and that of the WTI has risen by 45.0%.

Not promising anything, OPEC+ will review its production policy again on July 1. They're right to do so.

This is because the outlook remains fluid and uncertain. Despite increased coronavirus vaccinations and reduced cases in the advanced economies, the resurgence of infections (currently doing its rounds in Asia, Latin America and including Australia's state of Victoria) could restrain the global recovery and weaken overall demand for oil.

Already, the small increase in oil output has put further upward pressure on prices (as we've seen) - one, that's bound to act as an impediment to continued improvement in global growth. Rising oil prices, after all, are a tax on consumption.

OPEC+ is also balancing its output decision on whether or not Iranian production would come on stream if or when the US eases its sanctions which, according to the New York Times, "could increase its crude production to four million barrels a day from 2.4 million over the next year".

There's also the not so small issue with US oil producers. Rising oil prices make their investments more feasible and cost effective which, overall, increases the oil supply.

The Baker and Hughes rotary oil rig count has reached a 13-month high of 359 rigs as at the end of May - up by 30.5% so far this year and by a whopping 109% since it dropped to a 15-year low of 172 rigs in August 2020.

The Australian Bureau of Statistics' (ABS) 'National Accounts' show the Australian economy expanded by 1.8% in the March 2021 quarter - the third consecutive quarter of growth since the pandemic-induced recession in the March and June quarters of 2020 - taking the annual growth in GDP up to 1.1% and national output above the level it was before the coronavirus struck.

Using the same measure, this beats the US's 0.4% GDP expansion over the same one-year period, and far and away from economic contractions in the Eurozone (-1.8%), Japan (-1.8), and the United Kingdom (-6.1%).

There'll always be dissenters but, for me, the Morrison government has spent our money wisely. The government's tax incentives have driven business confidence and conditions to record highs. The National Australia Bank's (NAB) business survey showed business conditions jumped to a new all-time high reading of 32 in April, bettering what was then the record high score of 24 in the previous month. Business confidence surged to a record high reading of 26 in April from the already above long-term average readings of 17 in March and 19 in February (long-term average is 6).

Note that the survey was taken after reports of delays in Australia's vaccine roll-outs and the end of the JobKeeper scheme at the end of March and before the Australian Federal Treasury's spending splurge announced in the 2021/22 Budget.

This surge in business confidence translated into increased private investment with the National Accounts tracking a 5.3% increase in the March 2021 quarter and 3.6% higher from a year before - the first year-on-year increase sine the June quarter of 2018 and the fastest since the September quarter of 2017.

Australian businesses - big and small - have every reason to be confident because Australian consumers are confident and spending. The Westpac-Melbourne Institute index of consumer confidence remained elevated at a reading of 113.1 in May -- the second highest print for the Index since April 2010.

One that augurs well for the continued acceleration in household spending going forward, not to mention, the improvement in the country's labour market.

Household consumption grew by 1.2% in the March 2021 quarter, contributing 0.7 percentage points to growth and driven by a 2.4% increase in spending on services as mobility increased on the back of eased social and trading restrictions. Spending on services would have grown by more had it not been for the continued closure of Australia's international borders. While spending on goods declined by 0.5% over the quarter, it remains above pre-pandemic levels.

With Australia's household savings ratio remaining elevated at 11.6% in the March 2021 quarter, there'll be more spending going forward to satisfy pent-up demand. The savings ratio was recorded at 5.4% in the December 2020 quarter and has dropped by as much as -1.7% in the December 2002 quarter. That's a lotta savings that'll go towards the purchase of goods and services when (not if) Australians decide to run down their savings.

The renewed outbreak of coronavirus infections in Victoria - and the consequent lockdown in the state and the threat of the infection seeping into other states - underscores the risk to Australia's rosy outlook.

Then again, this has encouraged us, Australians all (well, most) to get vaccinated.

In the words of the RBA, "An important ongoing source of uncertainty is the possibility of significant outbreaks of the virus, although this should diminish as more of the population is vaccinated".

As expected, the RBA left monetary policy settings unchanged; "including: the targets of 10 basis points for the cash rate and the yield on the 3-year Australian government bond; the parameters of the government bond purchase program; and the rate of zero per cent on Exchange Settlement balances".

Financial markets expected as much. This is because the Australian central bank has already provided forward guidance at its May meeting that July is the month to watch out for.

"At its July meeting, the board will consider whether to retain the April 2024 bond as the target bond for the 3-year yield target or to shift to the next maturity, the November 2024 bond. The board is not considering a change to the target of 10 basis points. At the July meeting, the board will also consider future bond purchases following the completion of the second $100 billion of purchases under the government bond purchase program in September," it has said.

Then again, it doesn't hurt to replay the RBA's rosy narrative that Australia's economic recovery has been stronger than expected and would continue to do so. The RBA revised up its 2021 GDP growth forecast to 4.75% (from 3.5% predicted in its February statement). Only a day before, the OECD's 'Economic Outlook' report upgraded Australian GDP growth to 5.1% this year (from 4.75% it forecast in March and 3.2% in December 2020.

This stronger economic growth would boost the labour market with the RBA expecting the jobless rate to continue to fall "to be around 5% at the end of this year and around 4.5% at the end of 2022".

As for inflation, it's expected to rise temporarily "above 3% in the June quarter because of the reversal of some COVID-19-related price reductions" but largely, the RBA expects only a "gradual and modest" rise in inflation and wages.

"In the central scenario, inflation in underlying terms is expected to be 1.5% in 2021 and 2% in mid-2023," the RBA said.

"This outlook is supported by fiscal measures and very accommodative financial conditions. An important ongoing source of uncertainty is the possibility of significant outbreaks of the virus [alluding to the renewed coronavirus outbreak in Victoria], although this should diminish as more of the population is vaccinated."

The RBA's overriding assurance: "The board is committed to maintaining highly supportive monetary conditions to support a return to full employment in Australia and inflation consistent with the target. It will not increase the cash rate until actual inflation is sustainably within the 2-3% target range."

This was what the Organisation for Economic Cooperation and Development's (OECD) latest 'Economic Outlook' report revealed as it upgraded its projections for the world economy, supported by the quickening and expansion of the coronavirus vaccine roll-out and the massive fiscal stimulus in the United States.

The OECD predicts global GDP to grow by 5.8% this year and by 4.4% in 2022. This compares with the 5.6% and 4.0%, respectively, it forecast in March and a sharp upgrade from the 4.2% (for 2021) and 3.7% (for 2022) predicted in its December 2020 report.

However, it cautioned that the recovery is likely uneven...

"In many advanced economies more and more people are being vaccinated, government stimulus is helping to boost demand and businesses are adapting better to the restrictions to stop the spread of the virus. But elsewhere, including in many emerging-market economies where access to vaccines as well as the scope for government support are limited, the economic recovery will be modest," it said.

...and that considerable uncertainty surrounds OECD's projections:

"...although risks have become more balanced between potential positive and negative impacts. In countries where vaccination is not widespread, the risk of further outbreaks remains very high, with the possible emergence of new vaccine-resistant variants of the virus. This could trigger further containment measures and delay the economic rebound," the OECD said.

The OECD prescribes central banks in advanced economies should keep monetary policy settings accommodative and allow "temporary overshooting of headline inflation ... provided underlying price pressures are contained".

As for fiscal policy, the OECD advises governments to continue income support for households and businesses until vaccination becomes sufficiently widespread to allow significant easing of restrictions.

"The world economy is currently navigating towards the recovery, with lots of frictions. The risk that sufficient post-pandemic growth is not achieved or widely shared is elevated," OECD chief economist Laurence Boone said.

This is underscored by the latest IHS Markit/CIPS PMI survey. Preliminary estimates reveal that the UK composite PMI jumped from April's final reading of 60.7 to 62.0 in May - the highest reading since records began in January 1998. According to Markit: "Survey respondents widely commented on a post-lockdown bounce in business and consumer confidence, alongside higher output levels due to the phased reopening of customer-facing areas of the UK economy."

The flash UK manufacturing PMI soared to 66.1 in May - the highest since 1992 - from the final reading of 60.9 in the previous month. The flash UK services PMI went up from 61.0 in April (final reading) to 61.8 in May - a 91-month high (October 2013).

These justify the Bank of England's (BOE) decision at its May 5 monetary policy committee meeting to slow bond purchases to £3.4 billion a week between May and August, from £4.4 billion based on revised estimates for GDP growth to expand by 7.25% -- the fastest rate since World War II - this year from the February 2021 estimate of 5.0% and for the unemployment rate to peak at 5.5% later this year - as significant drop from the 7.75% it predicted three months earlier.

But with indications of stronger growth also comes rising inflation pressures.

Measured inflation in the UK has sequentially accelerated over the past three months - the annual rate of headline inflation rose to 1.5% in April (from 0.7% in the previous month); core inflation quickened to 1.3% from 1.1% in March.

The IHS Markit/CIPS PMI survey found that: "May data pointed to the fastest increase in average cost burdens across the UK private sector since August 2008. Manufacturers mostly commented on price pressures due to shortages of raw materials and high shipping costs, while service providers often noted increased staff salaries. Strong customer demand helped to confer a greater degree of pricing power to private sector businesses in May, as signalled by the strongest rate of output charge inflation since this index began nearly 22 years ago."

This supports expectations that the BOE could lift interest rates by the middle next year, recently given prominence by BOE policymaker Gertjan Vlieghe's remarks that the British central bank could lift rates as soon as the first half of 2022 but only if the unemployment rate doesn't pick up after the government's furlough scheme ends on September 30 this year.

But as the BOE warned at its May meeting, the economic outlook remains uncertain and depends on the "evolution of the pandemic".

Cases of infection from the Indian variant are rising in the country and threatens the planned removal of all restrictions on June 21 this year.

So are Victorians' irritation and anger at having their lives and livelihood restricted for the fourth time since the coronavirus began early last year. So are estimates of the cost to the state economy and, by extension, the whole of Australia (Victoria accounts for around 25% of the country's total GDP).

Citing the 'Australian Financial Review' (AFR), Factset reports that, "Business leaders estimate that Victoria's lockdown will cost the economy more than A$1B (some estimates of up to A$2B), with the effects compounded by the absence of support measures like JobKeeper".

If all goes well, this newly-imposed seven-day lockdown would go the same way of the five-day lockdown imposed only three months earlier (February) - short and minimal disruption to economic activity and the short-circuiting the spread of infections.

Then again, all might not go well because Victoria is now dealing with a different organism, a more aggressive and highly infectious variant with contact tracers identifying 15,000 primary and secondary contacts who may have been exposed to the 'Indian variant" in more than 100 exposure sites to date.

Given these, there remains the possibility of the lockdown being extended in Victoria and/or the virus seeping into other states.

But Australia is now in a better place compared with the lockdowns of days past.

Although the Westpac-Melbourne Institute index of consumer confidence dropped by 4.8% in May from April, the 113.1 reading is the second highest since April 2010.

And why not? Australia's labour market continues to improve despite the withdrawal of the government's JobKeeper scheme. The country's unemployment rate fell from 5.7% in March to 5.5% in April - just 0.2 percentage points (or 33,000 people) above the start of the pandemic and 2.0 percentage points below the 7.5% high recorded in July 2020 and the sixth straight monthly decline in the jobless rate.

Moreover, Australian business conditions jumped to a new all-time high reading of 32 in April, bettering what was then the record high score of 24 in the previous month, driven by continued improvement to record highs in the index's sub-components.

Business confidence surged to a record high reading of 26 in April from the already above long-term average readings of 17 in March and 19 in Feb (long-term average is 6).

This would encourage Australian businesses to keep on lifting their investment on buildings and structures, equipment, plant and machinery and staff.

The Australian Bureau of Statistics' (ABS) latest 'CAPEX' report reveals that they have already done so in the March 2021 quarter.

Here are the key stats:

Total new capital expenditure rose by 6.3%
Buildings and structures rose by 3.8%
Equipment, plant and machinery rose by 9.1%
Estimate 2 for 2021-22 is $113,635m. This is 7.9% higher than Estimate 1 for 2021-22

Lest you, I and Irene forget, there's also the A$74.6 billion spending splurge announced on the 11th of May in the 2021/22 Budget to secure Australia's recovery.

For sure and for certain, the government wouldn't be taking back the money it announced it'll be giving us, Australians all, earlier this month, that would be political suicide. Victoria's state government could even decide to loosen its budget spending.

And then, there's the Reserve Bank of Australia (RBA). At its May Board meeting, it hinted that it could start tapering its bond purchases in July.

This now, to a certain extent, hinges on developments in Victoria.

"Australian private sector growth eases from record but remains elevated," sums up Markit Economics' findings for the month of May.

The IHS Markit flash Australia composite PMI output index eased to a reading of 58.1 in May, but this, from April's final reading of 58.9 - the highest level recorded since the survey began in May 2016 and marks the ninth straight month of expansion in private sector activity.

"The continued expansion of the private sector was supported by improved client confidence, buoyant market conditions, strengthening demand, the easing of COVID-19 restrictions and low interest rates," it reads.

Taken May 11-19, IHS Markit failed to include the budget - the one where treasurer Josh Frydenberg announced a spending splurge of around $74.6 billion in order secure Australia's recovery.

Perhaps, respondents were still digesting the implications of the budget reveal. Perhaps, Australian manufacturing and services firms have already factored this additional government spend on their responses. But whatever, it'll definitely keep Australia's momentum going.

Markit's preliminary estimate shows the services PMI eased to a reading of 58.2 in May, but again, from the record high reading of 58.8 registered in April and the ninth consecutive month of expansion.

"Demand continued to improve markedly, encouraging companies to hire additional workers at a survey record pace," it reads.

Manufacturing continues to do well with the flash estimate rising from a final reading of 59.7 in April to a record high of 59.9 in May.

"Factory orders saw the eleventh consecutive month of expansion, with growth moderating only marginally from April's record high. Supporting the increase in total new orders was a third straight month of growth in new business from abroad," IHS Markit said.

No ifs, ands, or buts, Australia's economic revival has come and will be made stronger by additional spending announced in the budget and continued monetary policy accommodation by the Reserve Bank of Australia (RBA).

Too much of a good thing (stronger growth) isn't a good thing (rising inflationary pressures).

Markit Economics' May survey found that: "Input prices rose sharply in May, which panel members attributed to supply shortages, difficulties in international shipping and increased employment costs. The overall rate of inflation reached a survey peak."

"Prices charged also rose at the fastest pace on record as companies sought to protect their margins by passing on to their clients part of the additional cost burden."

For sure and for certain, the government won't be taking back the money it announced it'll be giving earlier this month - that would be political suicide.

But the RBA could start tapering some of its stimulus (in July as forward guided) to ensure that rising inflation pressures, indeed, are "transitory".

Flash (preliminary) estimates for May show:

• The US Composite Output Index rose to a record high reading with both the manufacturing and services sectors soaring to their highest readings ever.
• The Eurozone Composite Output Index jumped to a 39-month high with the services sector up to its highest reading in 39 months and while manufacturing ease to a two-month low, it has remained in expansion over the past 11 months.
• The UK Composite Output Index leapt to its highest reading since January 1998 - services sector at 91-month peak and manufacturing at its highest since January 1992.

However, in Japan - where infections are rising and a state of emergency re-imposed - the Composite Output Index returned to contraction, held back by the persistent contraction in the services sector that's partly negated by four straight months of expansion in the manufacturing sector.

Markit Economics' still has to report on China's PMI, but both its manufacturing and services sector had been expanding since May last year and latest activity indicators - retail sales, industrial production and fixed asset investment - suggest they'll continue to do so.

To be sure, there were really no surprises in Markit's latest roundup that the global recovery is getting hot, hot, hot.

But the latest survey shows that inflation is too.

• In the US: "Average selling prices for goods and services are both rising at unprecedented rates, which will feed through to higher consumer inflation in coming months."
• In the Eurozone: "This imbalance of supply and demand has put further upward pressure on prices. How long these inflationary pressures persist will depend on how quickly supply comes back into line with demand, but for now the imbalance is deteriorating, resulting in the highest-ever price pressures for goods recorded by the survey and rising prices for services."
• In the UK: "May data pointed to the fastest increase in average cost burdens across the UK private sector since August 2008. Manufacturers mostly commented on price pressures due to shortages of raw materials and high shipping costs, while service providers often noted increased staff salaries. Strong customer demand helped to confer a greater degree of pricing power to private sector businesses in May, as signalled by the strongest rate of output charge inflation since this index began nearly 22 years ago."

It's only in Japan where the PMI survey showed weaker inflation (surprise, surprise).

The question now is whether or not these are only transient inflationary pressures - as proclaimed by most central banks (led by the Fed and ex-BOJ) - or are early signs of things to come.

The answer to this would determine future monetary and fiscal policies.

This was how Michelle Marquardt, head of price statistics at the Australian Bureau of Statistics (ABS), explained the latest figures on the growth in wages in the domestic economy.

Growth in total wages accelerated to 1.5% in the year to the March 2021 quarter. Private sector wages growth steadied at 1.4% in the first quarter but public sector wages "recorded its lowest annual rate of growth (1.5%) since the commencement of the series" from 1.6% in the December 2000 quarter.

The Reserve Bank of Australia anticipated this in its April missive, saying: "...wage and price pressures are subdued and are expected to remain so for some years. The economy is operating with considerable spare capacity and unemployment is still too high. It will take some time to reduce this spare capacity and for the labour market to be tight enough to generate wage increases that are consistent with achieving the inflation target ... Looking through this, underlying inflation is expected to remain below 2% over the next few years."

The Australian economy is certainly recovering faster than expected and the labour market has improved significantly. The unemployment rate dropped to 5.6% in March after jumping to 7.5% in July last year -- its highest level in 22 years.

But it would take some time (perhaps, a long while) before it translates into higher wages and then spill over into higher inflation. Recall the good governor intimating that wages have to grow sustainably by more than 3% for it to translate into higher inflation.

The experience of the past few years suggests that the unemployment rate needs to drop by more than the RBA's expectations of "around 51/4 per cent by mid 2023".

Australia's unemployment rate fell to around 5.0% between late-2018 and early-2019, yet growth in total wages growth reached a high of only 2.3% during that period and the annual rate of inflation remained below the RBA's target - headline CPI and underlying measure at 1.9%.

Australia's annual headline CPI inflation has accelerated sequentially over the past nine months to March 2021 quarter, but at 1.1%, it remains halfway south of the bottom rung of the RBA's 2%-3% target band (same with core inflation).

The acceleration in inflation provides a good omen for wages growth, particularly for those whose pay increases are tied to the CPI's performance.

Then again, rising consumer prices relative to wages growth could turn into "Houston, we have a problem".

This is because rising consumer prices plus stagnant wages growth equals lower real wages equals reduced consumer spending. Growth in real wages (annual wages growth less inflation) has diminished to 0.4% in the March 2021 quarter from 0.6% in the December 2020 quarter and 0.7% before that.

This, in turn, eases pressure on inflation. More so, given Australian consumer's price sensitivity as proved by the migration into cheaper online stores. Salmat's 2018 Marketing Report found that, "price is the main factor driving consumer purchases" and that, "65% of respondents agreed they like to try new products if they're on sale, or if they receive a discount or points for purchasing".

Mckinsey & Company's August 2020 article - in the midst of the pandemic - reports that, "price consciousness is on the rise".

Sure, the 2021-22 Budget will bring more dollars to Australians' pockets, but with 37% of homeowners (not counting investors) with a mortgage, according to McKinsey's February 2020 report (more now I would imagine), extra money would be used towards servicing housing debt.

Inflation is the least of the RBA's worries. But it continues to blow bubbles in the property market so long as it keeps policy stimulative.

"The April survey result is simply stunning - with many variables reaching survey highs. Conditions reset last month's high, driven by further gains across trading conditions, profitability and employment. Confidence has also set a new high - pointing to ongoing strength in conditions in the near term".

You, I and Irene would have exclaimed the same just looking at the top line numbers of the latest NAB Business Survey. But the bank's group chief economist, Alan Oster, had first dibs.

Survey says...

Australian business conditions jumped to a new all-time high reading of 32 in April, bettering what was then the record high score of 24 in the previous month, driven by continued improvement to record highs in the index's sub-components:

Trading increased to a reading of 40 in April from 35 in March and 24 in February. Profitability scored 33 in April from 25 in March and 21 in February. Employment rose to 22 in April from 15 in March and 10 in April.

With business conditions like these, the jump in business confidence hardly comes as a surprise. Business confidence surged to a record high reading of 26 in April from the already above long term average readings of 17 in March and 19 in Feb (long-term average is six).

Further, the survey found that confidence improves in all industries and higher in all Australian states "except WA [Western Australia], which was flat.

"Oh, and more, much more than this" the outlook points to continued, if not accelerating, improvement. "Forward orders reset last month's record high - and point to a growing pipeline of work. Capacity utilisation also very high, and implies alongside the strength in a tivity, that firms may need to continue to hire workers and undertake investment in new projects to continue to grow".

Wait there's more!

The fine print in the NAB Business Survey reveals that: "Fieldwork for this survey was conducted from 21 to 30 April 2021, covering over 400 firms across the non-farm business sector."

This was after reports of delays in Australia's vaccine roll-outs and the end of the JobKeeper scheme at the end of March.

...and more, much more than this, the survey was conducted before the federal Treasury's spending splurge announced in the 2021/22 budget on May 11.

But as Ella Fitzgerald sings, "into each life some rain must fall".

The Westpac-Melbourne Institute index of consumer confidence dropped by 4.8% in May from April. Then again, and as Westpac points out, "It is still the second highest print for the Index since April 2010 and does follow an 11% rise in the Index over the previous three months".

All good and dandy, Andy. The question now is whether Australia is having too much of a good thing that a bad thing - rising inflation - is on its way.

So far so good. The NAB Business survey revealed that while final product prices accelerated to a quarterly rate of 1.0% in April from 0.9% in March, quarterly changes in labour costs (down to 1.6% in April from 1.9% in March), purchase costs (down to 1.6% from 1.9%) and retail prices (down to 0.8% from 1.0%) have been decelerating.

In addition, wages growth remains contained - up 1.5% in the year to the March 2021 quarter from 1.5% in the previous quarter.

The RBA would be justified whether it tapers or not come July.

Concerns over US inflation eased somewhat at the start of last week after US Bureau of Labor Statistics (BLS) revealed disappointing labour market stats.

The US economy added 266,000 jobs in April, well below market expectations for a nearly 1 million gain (978,000 to be exact). What's more, revisions to February (+68,000) and March (-146,000) estimates combined to show that employment was 78,000 less than previously reported. Likewise, the unemployment rate ticked up to 6.1% in April from 6.0% in the previous month.

But on the third day, it rose again, when the same bureau reported that headline inflation rose by 0.8% over the month of April - the biggest increase since June 2009 and four times above market expectations for a 0.2% gain - taking the annual headline inflation rate to 4.2% (the fastest rate since September 2008) from 2.6% in the previous month.

Core inflation (all items less food and energy) rose by 0.9% in April - the largest since April 1982 - with the annual rate accelerating to 3.0%, nearly double March's 1.6% rate.

However, there are reports that the 'poor' US labour market stats owe in part to fiscal policy largesse - more specifically, the rounds of stimulus cheques and increased unemployment benefits - that are "disincentivising" Americans from re-entering the labour market.

Job or no job, American consumers have money to burn. They're willing and able to accept dearer prices passed on by businesses that are paying higher costs due to continuing bottlenecks in the supply chain.

In addition, while the spike in measured inflation - headline and core - in April was due in part to base effects, reduced coronavirus restrictions have opened the floodgate on pent-up demand for goods and services.

Rising inflation expectations suggest that this would only gather pace going forward as Mr. and Mrs. Jones buy now before prices rise even more later.

The Fed's forward guidance that monetary policy would remain accommodative "until at least 2023" offers extra incentive to "buy now pay later". The Biden administration's fiscal policy largesse - already implemented and proposed - give this an extra oomph.

Then again, rising inflation - measured and expected - signals a fast-recovering economy. One that would be growing organically and not kept on monetary and fiscal life support.

What's wrong with that? What's there to fear?

It'll be a good sign if the Fed - followed by other central banks - reduce policy accommodation tomorrow, indicating a return to pre-coronavirus normal.

The Federal Reserve Bank of St. Louis' said: "Bullard noted that market-based inflation expectations have recovered from lows reached in March 2020. He said TIPS-based breakeven inflation could move higher and still be consistent with an inflation outcome (based on the personal consumption expenditures price index) modestly above the 2% inflation target set by the Federal Open Market Committee (FOMC).

"This would be a welcome development for the FOMC, as inflation has generally been below target for many years."

Now that he mentioned "inflation expectations", I investigated.

Bullard may be correct with regards to the market-based inflation expectations being "consistent with an inflation outcome (based on the personal consumption expenditures price index) modestly above the 2% inflation target" - there's a strong correlation between actual inflation and expectations - but history shows that it had been the Fed's countermeasures that tamed previous inflation breakouts.

US inflation expectations - measured as the differential between nominal bond yields and the yield on Treasury Inflation-Protected Securities (TIPS) have rising. They're now at levels higher than the Fed's first QE taper in 2013, its rate hike campaign between 2017 and 2019 and when then Fed chair Janet Yellen announced the first interest rate hike since the global financial crisis of 2009 in December 2016.

These countermeasures kept reversed inflation expectations and kept measured inflation within target.

She was the chair of the US Federal Reserve when now Treasury Secretary Janet Yellen explained the significance of inflation expectations.

"In standard economic models, inflation expectations are an important determinant of actual inflation because, in deciding how much to adjust wages for individual jobs and prices of goods and services at a particular time, firms take into account the rate of overall inflation they expect to prevail in the future," she said.

The 64 million dollar question now becomes, what would the Fed do to ease inflation expectations?

All four US benchmark equity indices dropped overnight - the Dow by 1.99; the S&P 500 by 2.1%; the Nasdaq composite by 2.7%; and the Russell 2000 by 3.3%.

The yield on 10-year US bonds increased to 1.70% from 1.62% the day before. The VIX index - the fear gauge - soared by 26.3% to a reading of 27.59 (the highest since March this year) and the US dollar index rose by 0.7% to 90.8.

The fear du' jour is that the US Federal Reserve might start withdrawing policy accommodation sooner than its peddling, sparked by resurgent concerns over inflation.

The US Bureau of Labor Statistics (BLS) reported that headline inflation rose by 0.8% over the month of April - the biggest increase since June 2009 and four times above market expectations for a 0.2% gain - taking the annual headline inflation rate to 4.2% (the fastest rate since September 2008) from 2.6% in the previous month.

Core inflation (all items less food and energy) rose by 0.9% in April - the largest since April 1982 - with the annual rate accelerating to 3.0%, nearly double March's 1.6% rate.

There is no denying that part of the jump in the annual inflation rate in April is due to base effects - both the headline and core CPI dropped by 0.7% in the month of April 2020. However, it's also true that the re-opening of the US economy, pent-up demand and government handouts make consumers more willing to accept higher prices passed on by businesses that are paying higher costs due to continuing bottlenecks in the supply chain.

But the Fed has already told us this would happen. Chair Jerome Powell has stressed time and again that, although measured inflation would increase in the coming months, it is likely to be "transitory" - one that's echoed by his merry FOMC men.

"It will take some time before we see substantial further progress," he said.

And if the Fed is right, the most recent dot plot shows that the fed funds rate would remain at 0 - 0.25% until at least the year 2023.

This is based on the assumptions that the PCE price index - the central bank's favoured inflation measure - would grow by 2.4% in 2021 (from 1.8% projected in December 2020) before slowing to 2.0% in 2022 (from 1.9%) and lifting ever so gently to 2.1% in 2023 (from 2.0%).

... and don't forget the Fed's change of strategy towards average inflation targeting -- the Fed is switching from a point target of 2% inflation to achieving "achieve inflation that averages 2 percent over time" - announced on the 27 August 2020 at Jackson Hole.

Finally, the financial markets' reaction to sooner-than-later Fed tightening could, in itself, fulfil the Fed's prophecy of later-than-sooner tightening.

This is because persistent losses in the equity markets would erode the "wealth effect", the rise in bond yields would make credit more expensive and the higher US dollar would reduce America's export competitiveness in the global market.

This is according to federal treasurer Josh Frydenberg, who last night, went further, announcing a spending splurge of around 74.6 billion in order secure Australia's recovery.

There's money, money and more money for almost every Australian to ensure that the country's emergence from its first recession in nearly 30 years is sustained.

"You must spend money to make money."

This quote, generally attributed to Roman playwright, poet and philosopher Titus Maccius Plautus (254 BC - 184 BC), along with Keynesian economics - that prescribes government intervention (spending) to mitigate the drop in aggregate demand in times of recessions to stabilise economic output - has put the Australian economy in good stead.

"Ahead of any major advanced economy, Australia has seen employment go above its pre-pandemic levels. At 5.6%, unemployment today is lower than when we came to government ... Australia's fate could have been so much worse. The United Kingdom, France and Italy all contracted by more than 8%, Japan and Canada by around 5%. Australia, just 2.5%."

"The strength in the domestic economic recovery is reflected in a stronger fiscal position, predominantly due to higher-than-expected tax receipts as well as lower-than-expected unemployment benefits."

The government's underlying budget deficit might still be an eye-watering $161.0 billion (7.8% of GDP) this fiscal year but it's a lot less than ($52.7 billion to be exact) than $213.7 billion (11% of GDP) forecast October 2020. The budget deficit would have been much worse had the government not intervened, with worse economic outcomes.

There would be more Australians out of work, more business closures, more crimes, etc. overall, a deeper and lengthier recession that'll eventually come full circle in terms of higher government expenditure with the added cost of entrenched unemployment and scarred confidence among consumers and businesses.

Because of these, the following year will see the deficit reduced to 5.0% of GDP (from the 5.6% ratio predicted in October) and "and continue to improve over the forward estimates to $57.0 billion (2.4% of GDP) in 2024-25. Over the medium term, the underlying cash balance is projected to improve to a deficit of 1.3% of GDP in 2031-32".

Then again, so much spending would take its toll on Australia's debt. "Net debt will increase to $617.5 billion or 30% of GDP this year and peak at $980.6 billion or 40.9% of GDP in June 2025."

But as Frydenberg points out, "This is low by international standards. As a share of the economy, net debt is around half of that in the U.K. and U.S. and less than a third of that in Japan".

The final words of the treasurer:

"This Budget secures the recovery and sets Australia up for the future. Tax cuts to put more money in people's pockets. Business incentives to unleash a further wave of investment. New apprenticeships and training places to get more Australians into work. A $110 billion infrastructure pipeline to build our nation's future. And record funding to guarantee the essential services Australians rely on.

"Australia is coming back. And this Budget will ensure we come back even stronger, securing Australia's recovery."

This represents a 31.4% increase from end-2020's closing price of US$163.93/tonne and a whopping 175% rally from the pandemic low of US$78.33/tonne plumbed on the 3rd of February 2020.

Favourable demand and supply conditions have put a rocket from underneath the iron ore's price.

Demand comes from China - the world's biggest consumer (69.1% of total world iron imports) - where crude steel production continues surge (up by 19.1% in the year to March from 12.9% in the January-February period) as Chinese mills lift production on the back of expectations for increased demand from the manufacturing and housing sectors.

For a very brief while, there were concerns that China's efforts to curb output to reduce carbon emissions and pollution from steel manufacturers would crimp demand for iron ore. But this had been negated by rising demand elsewhere.

Reuters points out that "imports by the rest of the world are rising, with ex-China arrivals estimated at 41.25 million tonnes in March, up from 34.43 million in February and 35.76 million in January" - a likely offshoot of the strengthening global recovery and world government's stimulus and counter-cyclical efforts to sustain this.

Besides these, China's anti-pollution drive has driven steel producers to buy higher quality iron ore exports from Australia and Brazil.

Speaking of Brazil, here's where the "favourable supply conditions" come in. It's the second largest exporter of iron ore (18.1% of total world exports) next to Australia (53.8%). Supply from Rio de Janeiro - where Vale S.A. (the country's largest iron ore miner) has its headquarters - is not expected to return to normal until June this year. Vale produced only 68 million tonnes in the January-March period, below expectations of 72 million tonnes.

According to Reuters, "the Brazilian mining giant struggled to boost output due to operational constraints as a result of the pandemic and a dam disaster two years ago".

What's not so good for Brazil is heaven sent for Australia.

Despite the escalation of diplomatic and trade tensions between Beijing and Canberra, China cannot get enough of Australia's biggest commodity export.

Australian Bureau of Statistics' (ABS) figures show that, in terms of quantity, Beijing bought 4% more iron ore (lump) in the month of March from February this year and 1% more iron ore (fines) over the same period.

Goes to show that China needs Australia for its continued urbanisation and economic growth as much as Canberra need Beijing for a stronger Australian recovery.

And oh, a lower underlying budget deficit.

The US economy added 266,000 jobs in April, well-below market expectations for a nearly 1 million gain (978,000 to be exact). What's more, revisions to February (+68,000) and March (-146,000) estimates combined to show that employment was 78,000 less than previously reported. Likewise, the unemployment rate ticked up to 6.1% in April from 6.0% in the previous month.

Fortunately for US Treasury Secretary Janet Yellen, she was quick to walk back her talk at the "Future Economic Summit" suggesting that interest rates may need to rise to avoid overheating due to fiscal stimulus. Yellen explained that she did not predict nor recommend a lift in interest rates and that she agreed with Fed Chairman Jerome Powell's view that while measured inflation has risen, it's likely to be temporary.

One swallow does not a spring make but the disappointing jobs numbers justify the Fed's belief that considerable slack remains in the economy and, therefore, little upward pressure on inflation.

Ergo, the US Federal Reserve will continue to keep monetary policy settings highly accommodative as would fiscal policy.

However, there are reports that the discouraging non-farm payrolls number owe in part to fiscal policy largesse - more specifically, the rounds of stimulus cheques and increased unemployment benefits - that are "disincentivising" Americans from re-entering the labour market.

There's the cheque for US$1200 per person (plus US$500 per child) issued under the CARES Act in March 2020; there's the cheque for US$600 per person (US$600 per child) announced in December 2020; there's the US$1400 per person (plus US$1,400 per each dependent of all ages) signed off in March 2021.

In addition, the Wall Street Journal "observes average unemployment recipient receiving federal enhancement (which continues to September) earns above the $15/hr federal minimum wage".

Voice of America says: "The federal government is continuing to make $300-a-week extra payments to the jobless into early September, on top of less generous state benefits, a provision that will help millions of unemployed until their old jobs are restored, or they find new work."

Eco 101 dictates that a less robust labour market would keep a lid on wages and therefore inflation. But this isn't the case for the US as cited in the April Beige Book survey that found "employment expectations were generally bullish".

"Some contacts mentioned raising starting pay and offering signing bonuses to attract and retain employees."

... and/or to compete with the government's offer of higher benefits without working.

But buried in the "Monetary Policy Summary and minutes of the Monetary Policy Committee meeting ending on 5 May 2021" document is the paragraph: "The existing programme of £150 billion of UK government bond purchases had started in January and its completion was expected by around the end of 2021. As envisaged since the announcement of the programme in November 2020 and consistent with developments in financial markets since then, the pace of these continuing purchases could now be slowed somewhat."

The central bank will slow bond purchases to £3.4 billion a week between May and August, from the current pace of £4.4 billion, but stressed that "this operational decision should not be interpreted as a change in the stance of monetary policy". Don't call it taper.

Taper or "slowed somewhat", the BOE's announcement is backed by its sharp upgrade to the country's economic outlook: "New COVID cases in the United Kingdom had continued to fall, the vaccination programme was proceeding apace, and restrictions on economic activity were easing."

As such, it said: "GDP is expected to recover strongly to pre-COVID levels over the remainder of this year in the absence of most restrictions on domestic economic activity. Demand growth is further boosted by a decline in health risks and a fall in uncertainty, as well as announced fiscal and monetary stimulus. Consumer spending is also supported by households running down over the next three years around 10% of their additional accumulated savings."

How much stronger? The bank now expects GDP growth of 7.25% - the fastest rate since World War II - this year from the February 2021 estimate of 5.0%.

Likewise, the BOE now forecasts the unemployment rate to peak at 5.5% later this year - as significant drop from the 7.75% it predicted three months earlier.

The BOE believes that while this strong growth outturn - and as some of the direct and indirect effects of COVID-19 on the economy fades - would send CPI inflation above the bank's 2.0% target towards the end of 2021, this would only be temporary and should return to around 2.0% in the medium term.

Still, the BOE cautions that the economic outlook remains uncertain and depends on the "evolution of the pandemic" while at the same time providing assurance that, it stands ready to increase the pace of bond purchases "should market functioning worsen materially" and that it won't "tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably".

Ever the optimist, the BOJ summarised its view in its "Outlook for Economic Activity and Prices (April 2021)" report, saying: "Although the level of Japan's economic activity, mainly in the face-to-face services sector, is expected to be lower than that prior to the pandemic for the time being, the economy is likely to recover, with the impact of the novel coronavirus (COVID-19) waning gradually and supported by an increase in external demand, accommodative financial conditions, and the government's economic measures.

"Thereafter, as the impact subsides, it is projected to continue growing with a virtuous cycle from income to spending intensifying."

There goes that "virtuous cycle" mantra again. Nothing wrong with that but perhaps the BOJ believes that if it repeats it often enough, someday, one day, it will come true. The earliest reference to the "virtuous cycle" I found was in the Japanese central bank's "Summary of Opinions at the Monetary Policy Meeting on December 20 and 21, 2017" document.

"Japan's economy is expanding moderately, with a virtuous cycle from income to spending operating. Going forward, it is likely to continue expanding on the back of highly accommodative financial conditions and underpinnings through the government's past stimulus measures," the BOJ said.

Still, to this day inflation - headline and core - has gone nowhere near the BOJ's 2% target despite introducing QQE with Yield Curve Control and Negative Interest Rates in 2016.

But I digress. While the BOJ upgraded its GDP growth forecasts in its April 2021 Outlook report - 4.0% in 2021 (from 3.9% predicted in January 2021) and 2.4% (from 1.8%) - it doesn't expect core inflation to reach target - 0.1% this year, 0.8% in 2022 and 1.0% in 2023.

The resurgence of coronavirus infections in the country is already nullifying one of the BOJ's assumptions - "The outlook is based on the assumption that the impact of COVID-19 will wane gradually and then almost subside in the middle of the projection period" -- with the government reportedly considering extending the 17-day state of emergency placed on the prefectures of Tokyo, Osaka, Kyoto and Hyogo beyond 11 May as cases continued to increase since 25 April when the state of emergency was announced.

With only less than three months to go, the extension of emergency restrictions raises doubts over the Olympics. If cancelled or delayed (again), it would remove the benefits -- increased travel and tourism and broadcast rights to events - Japan could get as host.

In its policy statement, the BOJ promised that, "the Bank will closely monitor the impact of the novel coronavirus (COVID-19) and will not hesitate to take additional easing measures if necessary".

It's necessary now.