Global Inflation Update: Price Levels in Recovery Mode?

Not too long ago, a downturn in inflation spurred by falling oil prices was causing a huge headache for most economies. Heck, some central banks even decided to ease monetary policy in order to keep price levels supported! Have these been enough to spur inflation? Let’s take a look at the figures we have so far:

North America

us canada inflationThe freshly released CPI readings from the U.S. didn’t turn out so bad, as both headline and core figures posted 0.2% gains for February. Thanks to a strong rebound in fuel costs, headline inflation managed to post its first positive reading in four months. Producer prices, however, are hinting at more downside pressure on consumer inflation since both headline and core PPI were down 0.5% in February.

In Canada, headline CPI posted a strong 0.9% rebound in February after chalking up three consecutive monthly declines since November. Core inflation showed a 0.6% gain, stronger than the previous 0.2% uptick. Just as in the U.S., leading inflation indicators such as the raw materials price index and the industrial product price index still suggest further weakness in CPI, as these posted a 7.7% tumble and a 0.4% drop respectively.

Europe

Moving on to another part of the globe… The euro zone also showed an improvement in core inflation, as the annualized reading for February picked up by 0.7% from the previous 0.6% figure. Headline inflation was down 0.3% on a year-over-year basis, an improvement from January’s -0.6% reading.

On the other hand, the U.K. still seems to be stuck in an inflationary rut. Headline CPI slumped from 0.3% to 0.0% in February while core CPI dropped from 1.4% to 1.2%, confirming the BOE’s hunch that pound strength is weighing on price levels. Consumers aren’t counting on any improvements just yet, as inflation expectations slipped from 2.5% to 1.9%, while producers reported a feeble 0.2% increase in PPI instead of the estimated 1.6% gain.

In Switzerland, headline CPI fell 0.3% in February, following January’s 0.4% drop and December’s 0.5% decline. Producer prices also suggest that a pickup ain’t likely to happen anytime soon, with the February PPI marking a 1.4% tumble, more than twice as much as the previous month’s 0.6% drop.

Asia and Oceania

On the other side of the world, China reported an impressive 1.4% increase in its headline CPI last month, much higher than the estimated 1.0% increase and the previous 0.8% gain for January. However, analysts say that this pickup in inflation might be short-lived, as producer prices showed a steeper 4.8% decline for February compared the previous 4.3% drop.

Deflation still remains a concern in Japan, as the national core CPI has been falling for six months and counting. Producer prices posted a 0.5% uptick for February though, which might be enough to stop the bleeding for now.

In New Zealand, price levels might be in for a recovery this quarter, as the GDT index has been showing consecutive price gains since the start of the year, except for the latest one which revealed a sudden 8.8% drop.

All in all, it seems that while price declines have paused for the time being, leading indicators still hint at a gloomy forecast. The U.K. and Switzerland appear to be lagging behind the bunch while the Asian region seems to be facing better prospects. Do you think this could spur pound and franc weakness against the comdolls?

 

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  • ForExchange

    Hi Forex Gump,

    Ha-ha-ha… You remember our discussion some months ago when I disagreed with the statement that “lower prices hurt all economies but not UK”? I said if it is bad for everyone it should be also bad for UK, no matter what the officials say. Well, GBP suffered one of the worst in the last times.

    Besides that, do you have something to say about Australia?

    Thanks,
    FE

    • Haha why yes, of course! And now it looks like the long GBP trades are unwinding now that everyone’s seeing the impact of weak inflation on the UK economy. IMHO, weak inflation seems to be having a delayed effect on Australia but I do think it will take its toll on commodity-dependent industries sooner or later. What do you think?

  • Noted! Thanks for the positive feedback!

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