In previous post, I analyzed inflation and hot money inflow in China. Now here is a piece from Michael Pettis. In it, he analayzes the composition of China’s capital inflow in the first four months of 2008.

“If this is true that means that reserves grew in the month of April by $74.5 billion, the biggest one-month reserve jump in China’s history (and probably in the history of the world)…

To get a sense of scale, in 2006 reserves were up $247 billion for the whole year. This, at the time, was a number guaranteed to shock. No central bank in history has seen reserve growth at anywhere near this scale. Nonetheless in 2007, the growth in reported reserves nearly doubled over the previous year — $462 billion – and more than doubled if we backed out a series of transactions that reduced headline reserve growth but had no net impact on the monetization of currency inflows…”

(click to enlarge, courtesy of Michael Pettis)

WSJ reports: Americans expect prices to rise by a median of 3.4% a year during the next five to 10 years, the highest expectation since 1995, according to the latest Reuters/University of Michigan consumer-sentiment survey, released Friday. The number was 2.9% as recently as March.

More worrisome, consumers, on average, expect prices to increase 5.2% in the next 12 months, the highest level for an expected rise since 1982. Meanwhile, the gap in yields is widening between Treasury bonds that are indexed to inflation and those that aren’t, suggesting investors also think prices will keep climbing.

(click to enlarge. source: FRED)

Jim Hamilton suggests you look at GDP revision in a longer term. The bottom line is: don’t be fooled by the recent 0.9% Q1 GDP number. The graph below shows it all.

I’d like to remind readers that GDP is a series subject to a lot of revisions (and in any case, NBER looks at a lot of other series). To that end, I depict below what we thought GDP was doing at the end of May 2001 [1], [2].

Figure 2: Real GDP (Ch.2000$, SAAR), annualized quarter-on-quarter growth rates from May 2008 release (blue), from May 2001 release (red), from July 2001 release (green). NBER defined recession highlighted gray. Source: BEA via FRED II, ALFRED, NBER, and author’s calculations.

Note that even at the end of July 2001, we still thought 2001Q1 growth was positive, and thought the same of 2001Q2 as well… So I’m more in agreement with Jeff Frankel than with Carpe Diem.

The reason why many suspected a QI turning point in the first place is employment, which is virtually as important an indicator to the NBER BCDC as is GDP. Jobs have been lost each month since January. Total hours worked is my personal favorite, because in addition to employment it captures the length of the workweek, which firms tend to cut before they lay off workers. …

To fully appreciate the impact that soaring oil prices have had on the nation's beleaguered airline industry, consider that U.S. carriers will likely spend $60 billion on jet fuel this year—nearly four times what they paid in 2000. Because of the spike in fuel costs, airlines now lose roughly $60 on every round-trip passenger, a slow bleed that puts the industry on pace to lose $7.2 billion this year, the largest yearly loss ever.

Not surprisingly, Wall Street has become so dour about the industry's prospects—can you say federal bailout?—that the combined market capitalization for the six major legacy carriers and Southwest Airlines has fallen to just over $17 billion. That's about what ExxonMobil (XOM) books in revenues every two weeks. "The U.S. airline industry, as it is constituted today, was not built for $125-per-barrel oil," Gerard Arpey, the chief executive of American Airlines parent AMR (AMR), told shareholders on May 21.