Inflation tracker: An improvement in real wages

In the four zones covered (United States, Eurozone, United Kingdom, Japan), wage growth continues to outstrip inflation, supporting household purchasing power gains, but contributing, apart from Japan, to keeping inflation in services at high levels. Price pressure indices (page 19) and producer prices are recovering moderately.

In the US, the CPI report for May shows encouraging signs of disinflation. The index, which excludes food, energy and shelter, fell below 2% year-on-year for the first time since March 2021. This mainly reflects the stronger deflation in durable goods, particularly used vehicles (-9.3% y/y compared with -6.9% the previous month), while inflation in services was down slightly but still high, at 5.2% compared with 5.3% in April. Household inflation expectations over the medium term (1 year) and long term (5 years) have both moved back into line with observed inflation (page 21).

In the Eurozone, inflation picked up slightly, rising from 2.4% y/y in April to 2.6% in May, with a particularly marked rebound in Portugal (+1.5 pp, to 3.8%), Cyprus (+0.9 pp, to 3.0%) and to a lesser extent in Germany (+0.4 pp, to 2.8%) and Spain (+0.4 pp, to 3.8%). Conversely, inflation fell in Latvia (-1.1 pp, to 0.05%), Greece (-0.8 pp, to 2.4%) and Croatia (-0.4 pp, to 4.3%). The ECB will also take note of the slightly favourable trend in the PCCI index, which fell from 1.8% year-on-year in April to 1.7% in May, even though the weighted median rebounded from 2.5% to 2.8%. The “supercore” measure is stable at 2.9% y/y (page 9). While forecasters' medium and long-term inflation forecasts are fairly close to the current level, household forecasts remain well above it (page 22).

Inflation in the UK made a remarkable return to target, falling back to 2% in May, thanks in particular to stronger deflation in energy. In fact, the UK is the only economy of the four major blocs to continue to benefit from this effect, while inflationary pressures are again emerging on this component in the US, the eurozone and Japan (page 6). This favourable effect is set to continue this summer, due to the planned 7.2% cut in the ceiling on regulated gas and electricity tariffs, following the 12.3% reduction agreed in April. Durable goods were the second biggest deflationary item (-3.8% y/y), driven down mainly by used vehicles (-11.2%) and large household appliances (-7.5%). Core inflation has also eased, to 3.5%, but inflation in services remains high (5.7%).

In Japan, inflation is falling again, after a slight rebound over the winter. Total CPI inflation slipped from 2.7% y/y in March to 2.5% in April, the same rate as the core measure (excluding fresh food and energy). The annual rise in food prices, which in April accounted for more than a third (1.1 percentage points) of total inflation, nevertheless eased to 4.3%. On the other hand, market expectations, reflected by the break-even inflation rate, and household expectations are rising, as are scheduled earnings, which broke through the 4% year-on-year barrier in April (page 27).

Download the Full Report!

Share: Analysis feed

BNP Paribas is regulated by the FSA for the conduct of its designated investment business in the UK and is a member of the London Stock Exchange. The information and opinions contained in this report have been obtained from public sources believed to be reliable, but no representation or warranty, express or implied, is made that such information is accurate or complete and it should not be relied upon as such. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy any securities or other investment. Information and opinions contained in the report are published for the assistance of recipients, but are not to be relied upon as authoritative or taken in substitution for the exercise of judgement by any recipient, they are subject to change without notice and not intended to provide the sole basis of any evaluation of the instruments discussed herein. Any reference to past performance should not be taken as an indication of future performance. No BNP Paribas Group Company accepts any liability whatsoever for any direct or consequential loss arising from any use of material contained in this report. All estimates and opinions included in this report constitute our judgements as of the date of this report. BNP Paribas and their affiliates ("collectively "BNP Paribas") may make a market in, or may, as principal or agent, buy or sell securities of the issuers mentioned in this report or derivatives thereon. BNP Paribas may have a financial interest in the issuers mentioned in this report, including a long or short position in their securities, and or options, futures or other derivative instruments based thereon. BNP Paribas, including its officers and employees may serve or have served as an officer, director or in an advisory capacity for any issuer mentioned in this report. BNP Paribas may, from time to time, solicit, perform or have performed investment banking, underwriting or other services (including acting as adviser, manager, underwriter or lender) within the last 12 months for any issuer referred to in this report. BNP Paribas, may to the extent permitted by law, have acted upon or used the information contained herein, or the research or analysis on which it was based, before its publication. BNP Paribas may receive or intend to seek compensation for investment banking services in the next three months from an issuer mentioned in this report. Any issuer mentioned in this report may have been provided with sections of this report prior to its publication in order to verify its factual accuracy. This report was produced by a BNP Paribas Group Company. This report is for the use of intended recipients and may not be reproduced (in whole or in part) or delivered or transmitted to any other person without the prior written consent of BNP Paribas. By accepting this document you agree to be bound by the foregoing limitations. Analyst Certification Each analyst responsible for the preparation of this report certifies that (i) all views expressed in this report accurately reflect the analyst's personal views about any and all of the issuers and securities named in this report, and (ii) no part of the analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed herein. United States: This report is being distributed to US persons by BNP Paribas Securities Corp., or by a subsidiary or affiliate of BNP Paribas that is not registered as a US broker-dealer, to US major institutional investors only. BNP Paribas Securities Corp., a subsidiary of BNP Paribas, is a broker-dealer registered with the Securities and Exchange Commission and is a member of the National Association of Securities Dealers, Inc. BNP Paribas Securities Corp. accepts responsibility for the content of a report prepared by another non-US affiliate only when distributed to US persons by BNP Paribas Securities Corp. United Kingdom: This report has been approved for publication in the United Kingdom by BNP Paribas London Branch, a branch of BNP Paribas whose head office is in Paris, France. BNP Paribas London Branch is regulated by the Financial Services Authority ("FSA") for the conduct of its designated investment business in the United Kingdom and is a member of the London Stock Exchange. This report is prepared for professional investors and is not intended for Private Customers in the United Kingdom as defined in FSA rules and should not be passed on to any such persons. Japan: This report is being distributed to Japanese based firms by BNP Paribas Securities (Japan) Limited, Tokyo Branch, or by a subsidiary or affiliate of BNP Paribas not registered as a financial instruments firm in Japan, to certain financial institutions permitted by regulation. BNP Paribas Securities (Japan) Limited, Tokyo Branch, a subsidiary of BNP Paribas, is a financial instruments firm registered according to the Financial Instruments and Exchange Law of Japan and a member of the Japan Securities Dealers Association. BNP Paribas Securities (Japan) Limited, Tokyo Branch accepts responsibility for the content of a report prepared by another non-Japan affiliate only when distributed to Japanese based firms by BNP Paribas Securities (Japan) Limited, Tokyo Branch. Hong Kong: This report is being distributed in Hong Kong by BNP Paribas Hong Kong Branch, a branch of BNP Paribas whose head office is in Paris, France. BNP Paribas Hong Kong Branch is regulated as a Licensed Bank by the Hong Kong Monetary Authority and is deemed as a Registered Institution by the Securities and Futures Commission for the conduct of Advising on Securities [Regulated Activity Type 4] under the Securities and Futures Ordinance Transitional Arrangements. Singapore: This report is being distributed in Singapore by BNP Paribas Singapore Branch, a branch of BNP Paribas whose head office is in Paris, France. BNP Paribas Singapore is a licensed bank regulated by the Monetary Authority of Singapore is exempted from holding the required licenses to conduct regulated activities and provide financial advisory services under the Securities and Futures Act and the Financial Advisors Act. © BNP Paribas (2011). All rights reserved.