WASHINGTON, (Reuters) – U.S. inflation numbers soothed fears of overheating from stimulus spending, China and Japan offered cautiously upbeat views on their recoveries, and U.S. President Barack Obama unveiled tough regulatory reforms aimed at avoiding a repeat of the global banking crisis.
There was comforting news yesterday in the U.S. consumer price report for investors who fear that Obama’s massive stimulus spending and bank and auto bailout plans would heat up inflation.
Prices rose a smaller-than-expected 0.1 percent in May, and core CPI also rose just 0.1 percent — the smallest advance since December 2008.
Over the past 12 months, prices fell 1.3 percent, the steepest year-to-year decline since April 1950 in the world’s largest economy.
In the second biggest, Japan’s government raised its assessment for a second month, while in China — an important engine of world economic growth — the cabinet said it saw more positive signs.
But both Chinese and Japanese policymakers said recovery prospects were uncertain, a view echoed in Lisbon by European Central Bank policymaker Vitor Constancio.
“There are risks of a prolonged period of weak growth in developed economies,” Constancio told a banking conference.
The contraction in global trade was highlighted by U.S. data showing imports and exports falling further in the first three months of this year, reducing the world’s biggest current account deficit to its lowest level since the end of 2001, when the Sept. 11 attacks shook the world economy.
The U.S. government has been discussing for six months how best to tighten bank and market regulation in response to the global crisis, which erupted when a long-running credit boom fueled increasingly risky lending, notably in U.S. mortgages.
The regulatory reform plan unveiled by the president would close one regulator, the Office of Thrift Supervision, and put the Federal Reserve in charge of monitoring big-picture systemic economic risks.
