Chinese consumer price inflation fell from an annual 3.1% to 2.9% between May and June but growth in the wider GDP deflator measure rose to 5.6% in the second quarter from 4.6% in the first – see chart. This is above the average of 4.4% since 2000.

Annual GDP deflator inflation has averaged 2.5 percentage points more than CPI inflation since 2000 but, unusually, the gap closed temporarily during the "great recession", which, apparently, bypassed China. This could reflect price weakness in non-consumption GDP components; it is also consistent with a massaging down of the deflator data in order to boost published real GDP growth rates.

Deflator inflation peaks of 8.8% in 2004 and 11.0% in 2007 followed highs of 20% and 23% respectively in annual growth in narrow money, M1 – see chart. With M1 expansion having reached 39% last year, it would be surprising if second-quarter inflation of 5.6% marks the peak in the current upswing.

Chinese monetary policy is on hold but inflationary risks from the monetary overhang suggest no scope for growth-boosting actions.

US private job openings (vacancies) slipped back in May but the three-month moving average continued to climb, suggesting a further rise in employment – see first chart. (Private-sector numbers have been used to avoid distortions caused by temporary government employment to conduct the decennial census.)

UK vacancies are also on the up again after a temporary dip in early 2010, possibly related to election uncertainty, with an increase in private openings in the three months to June offsetting a fall in the public sector – second chart. Employee jobs in the quarterly workforce survey were still falling in the first quarter but employee numbers in the (more volatile) labour force survey increased in the three months to May.

The fall in annual consumer price inflation from 3.4% in May to 3.2% in June reflects a slowdown in fuel costs. "Core" trends remain stubborn, with a recent acceleration in services inflation providing further evidence that spare capacity is failing to exert the dampening impact expected by the Monetary Policy Committee.

Other points:

• CPI inflation averaged 3.44% in the second quarter versus the Bank of England's 3.30% estimate in the May Inflation Report. This is the fifth quarter out of the last six that the Bank has underestimated current-period inflation.

• "Core" inflation excluding energy, food, alcohol and tobacco moved back up to its recent high of 3.1% from 2.9% in May.

• Core resilience reflects a pick-up in services inflation from 3.0% in January to 3.9% currently. Inflation optimists argued that services trends would slow in response to excess capacity, with a weak exchange rate having less offsetting impact than in manufacturing. The recent acceleration, however, had been suggested by business surveys – see chart.

• Goods inflation, excluding energy and food, has fallen from 3.3% to 1.9% since January, partly reflecting a stabilisation of the exchange rate. Imported pressures, however, remain strong, with manufactured import prices rising by 5% in the first five months of the year, according to May trade figures released last week.

• The Bank is likely to be forced to revise up its forecasts of 2.54% and 2.28% in the third and fourth quarters significantly in the August Inflation Report. On conservative assumptions, inflation may average 2.75% in the fourth quarter before returning to 3% in early 2011 as VAT is raised.

• The second-quarter outturn of 3.44% compares with a central projection of 0.73% a year earlier in the May 2009 Inflation Report. Bank officials have deflected criticism of this forecasting failure but an internal review may be under way, with the Bank's recent Annual Report stating that the budget contains an allowance for expenditure of £2.4 million on a "new forecasting model".

US recessions since the mid 1950s have been preceded by a flat or inverted Treasury yield curve. Some commentators take comfort from current curve steepness but the rule-of-thumb has been rendered obsolete by near-zero short-term interest rates.

A summary measure of the slope of the Treasury curve is the gap between the yield on 10-year bonds and the discount rate on three-month bills. This has averaged 1.4% since 1955 but fell below 0.3% before the last nine recessions, turning negative in six cases – see chart.

The three-month Treasury bill rate, however, was at least 3% across these nine episodes versus only 0.2% today. It is necessary to examine earlier recessions to gauge a "warning level" for the gap when short rates are very low.

The four downturns between 1935 and 1955 each occurred against the backdrop of a positively-sloped curve. The closest parallel with today is 1937-38, when the three-month bill rate fluctuated in a 0.2-0.6% range. The curve flattened before the recession but the 10-year / three-month gap never fell below 2.3%.

This 2.3% minimum may be a reasonable guide to a recessionary level of the gap today. Assuming that the three-month bill rate remains at 0.2%, this implies that the 10-year yield, currently 3.0%, would have to fall to 2.5% or below to generate a warning signal.

Interestingly, the suggested critical level of 2.3% for the yield gap is close to the 2.5% used by John Hussman in his original list of recession-spotting criteria – see previous post. The newer version of his list, however, employs a higher value of 3.1%, contributing to his recent recession call (since the current reading is 2.8%).

As explained in the earlier post, 10 out of 11 post-war US recessions have been preceded by a contraction of real narrow money – currently still expanding. The central scenario here will remain a temporary slowdown rather than a "double dip" unless monetary trends deteriorate and / or the 10-year yield falls beneath 2.5%.

National accounts revisions released today confirm the earlier estimate that constant-price GDP rose by 0.3% in the first quarter to stand 0.2% lower than a year before. The new figures, however, contain important changes in other aspects of the accounts:

• Current-price GDP is now estimated to have grown by 2.7% in the year to the first quarter versus 3.3% before, reflecting a downward revision to the rise in the deflator. This appears to weaken the argument made by the MPC's Andrew Sentance, among others, that current high consumer price inflation partly reflects a solid rebound in money GDP. On closer inspection, however, the revision is concentrated in the second quarter of 2009 and the new figures still show a significant acceleration in nominal expansion more recently, with current-price GDP rising at an annualised rate of 5.5% in the three quarters to this year's first quarter.

• Domestic demand was stronger than previously thought in the latest quarter and over the last year, with net exports correspondingly weaker. The demand upgrade was focused on fixed investment, which is now estimated to have risen by 5.7% from a trough in the second quarter of 2009 versus 1.6% previously. Worse trade performance partly reflected changes to the export and import deflators, resulting in a smaller portion of the observed rise in export values being attributed to increased volumes, and a larger portion for imports.

• The gross operating surplus of corporations was 4.7% lower than previously estimated in the first quarter, with income reallocated to employee compensation. Partly as a result, the household saving ratio remained at a respectable 6.9% in the first quarter, little different from the long-term average and far above the norm for the last decade – see chart. This may reduce concerns about a further rise in the ratio acting as a drag on consumer spending growth.

• Constant-price GDP is now estimated to have fallen by 6.4% during the recession versus 6.2% previously. Further major revisions, however, will occur in future years, with a significant cut in the output decline possible, based on the evolution of official data after the last three recessions and the "conundrum" of recent labour market resilience.

• Even on the current vintage of data, the recession was slightly less severe than the 1979-81 contraction once adjustment is made for North Sea oil and gas output – declining recently but rising then. Constant-price gross value added excluding oil and gas fell by 6.1% between the first quarter of 2008 and the third quarter of 2009 compared with a 6.4% drop between the second quarter of 1979 and the first quarter of 1981.