Global inflation watch: Disinflation still on track
|Overview: Underlying inflation has moderated both in the euro area and the US. Inflation pressures ease gradually with weak goods inflation and in the case of US, cooling job market and lower wage growth. In the euro zone, wage growth remains elevated but is also now cooling. US elections drove a modest uptick in markets’ inflation expectations, but we do not expect the result to derail the Fed from cutting in December. Oil prices have also moved lower despite the geopolitical tensions. We continue to forecast gradual disinflation despite the near-term uncertainties.
Inflation expectations: In the US, market-based inflation expectations rose modestly following the election result. That said, the level of most inflation expectations measures remains well aligned with central banks’ targets.
US: The October CPI was close to expectations on headline level (+0.2% m/m SA, cons. +0.2%, Sep +0.2%). The uptick in annual terms (2.6% y/y, Sep 2.4%) was almost purely explained by a weaker reading a year ago. Core CPI grew also as expected (+0.28% m/m SA, cons. +0.3%, Sep. +0.31%). Around 60% of the increase in core prices was driven by shelter component, which ticked higher in October, but remains on a cooling trend. Other major core inflation components (core goods, health care and other non-housing services) showed declining price pressures. The reading supports our call for the Fed’s next rate cut in December.
Euro: Inflation increased to 2.0% y/y in October (cons: 1.9%, prior: 1.7%) driven by energy and food inflation, while core inflation was unchanged at 2.7%. Core inflation rose 0.20% m/m SA driven by still elevated service price increases of 0.30% m/m SA while goods prices remained unchanged at 0.0% m/m SA. The October data thus showed that the very soft services inflation registered in September was a “blip” and inflation dynamics remain the same as we saw in the first months of Q3, namely momentum in underlying inflation heading slowly in the right direction. Worth keeping an eye on going forward is also food prices as they continued to rise quite strongly in October like in previous months.
China: October CPI declined from 0.4% y/y to 0.3% y/y while core CPI rose to 0.2% y/y from 0.1% y/y. PPI dropped to -2.9% y/y from -2.8% y/y.
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