PP 7767/09/2011(028730)

Economic Highlights
Global
•
MARKET DATELINE

18 October 2010

1 US Core Inflation Moderated Yoy In September,

Increasing The Odds Of The Fed To Ease Its Policy
Further

2 US Retail Sales Moderated M-o-m In September

3 Euroland’s Exports Bounced Back In August

Tracking The World Economy...

Today’s Highlight

US Core Inflation Moderated Yoy In September, Increasing The Odds Of The Fed To Ease Its Policy Further

US headline inflation eased to 0.1% mom in September, after holding stable at 0.3% in July-August. The moderation
was due to a sharper drop in the prices of apparel and the costs of recreation, while the costs of housing and education
slipped into a contraction during the month. A slower increase in the costs of transport, on the back of a slowdown in
gasoline prices and a drop in the costs of vehicles, also helped. These were, however, offset partially by to a pick-up
in food & beverage prices and the costs of medical. Excluding energy prices, inflation remained unchanged in September,
after holding stable at 0.1% mom in May-August. Excluding food and energy prices, the core inflation rate remained
unchanged for two consecutive months in August-September, after easing to +0.1% mom in July.

Yoy, the headline inflation held stable at 1.1% in September, the same rate of increase as in August and compared with
+1.2% in July and the peak of +2.7% in December. The core inflation rate, on the other hand, moderated to 0.8% yoy
in September, after holding stable for the fifth consecutive month at +0.9% in August and compared with the peak of
+1.8% in December. The slight easing in the core inflation after it has stabilised somewhat in the last few months has
raised concerns over risk of the US falling into deflation. Indeed, the US Federal Reserve Chairman, Ben S. Bernanke,
reiterated on 15 October that additional monetary stimulus may be warranted because inflation is too low and unemployment
is too high. He said that the Fed could either expand asset purchases or change the language in its statement. However,
Mr Bernanke said that “nonconventional policies have costs and limitations that must be taken into account in judging
whether and how aggressively they should be used”. Although the Fed Chairman did not offer new details on how the
Fed would undertake those strategies on 2-3 November’s FOMC meeting, many believe the central bank will likely
implement a new round of quantitative easing to help the economy.

The US Economy

Retail Sales Moderated M-o-m In September

◆ US retail sales moderated to +0.6% mom in September, from +0.7% in August. This was the third straight
month of increase, indicating that consumers continued to spend, albeit at a more moderate pace. A decline in sale
of clothing and at department stores as well as a slowdown in sales of food & beverages, healthcare products and
gasoline contributed to the slowdown. These were made worse by a slowdown in sales at non-store retailers and
eating & drinking places. These were, however, mitigated by a pick-up in sales of auto, electronic goods, furniture
and building materials. Excluding auto sales, retail sales slowed down to 0.4% mom in September, from +1.0%

Peck Boon Soon

(603) 9280 2163
Please read important disclosures at the end of this report.
bspeck@rhb.com.my

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 18 October 2010

in August. Excluding auto and gasoline sales, retail sales grew by 0.4% mom in September, compared with +0.9%
in August. Yoy, retail sales rebounded to 7.7% in September, after slowing down to +3.9% in August and compared
with +5.3% in July, suggesting that consumer spending, though losing momentum, remains resilient. As a whole,
the readings suggest that the US economy will likely continue to expand in the 3Q, after recording a slower
growth in the 2Q.

The Euroland Economy

Exports Bounced Back In August

◆ Euroland’s exports rebounded to increase by 31.3% yoy in August, from +17.8% in July. This was the
strongest growth thus far this year, indicating that the region’s exports remained resilient amidst a slowdown in
global demand. In the first seven months of 2010, growth in exports was driven mainly by a pick-up in exports
to the US and UK, which grew by 14% and 11% yoy respectively during the period. Similarly, exports to Japan,
China and Russia rebounded strongly to increase by 17%, 42% and 19% yoy respectively in January-July 2010.
In the same vein, the region’s imports grew at a faster pace of 32.0% yoy in August, compared with +25.7% in
July but off the peak of +33.5% in June. This suggests that exports and domestic demand, though slowing down,
will likely remain resilient. As a whole, a resilient export growth will help to sustain the region’s economic
activities in the 3Q, after growing at a faster pace of +1.0% qoq in the 2Q.

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