Global Inflation Update: Recent Oil Slump is a Drag

Greetings, forex friends! After slumping pretty hard last year, oil prices were able to recover a bit, but that ended when oil prices began sliding down again starting in March of this year. So, how did the recent oil slump affect inflation levels in some of the major economies of the world?

Forex Chart: Latest Headline CPI

Forex Chart: Latest Core CPI

Well, as the above tables show, it seems like inflation levels for most of the major economies either took a hit or stalled, but let’s delve deeper into their respective inflation reports to find out if lower oil prices are indeed the main reason, shall we?

The U.S.

Forex Chart: U.S. Annualized CPI

U.S. headline CPI for September was unable to hold on to the previous month’s 0.2% increase, ending up flat at 0.0%. The main source of deflationary pressure came from the energy index, which declined by 18.4% on an annualized basis and by 4.8% on a monthly basis. All the major components listed under the energy index were in the red as well, with the “fuel oil” component bleeding out the most at -34.9%. Ouch! Other drags include the “apparel” component, which declined by 1.4% on an annualized basis, and the “used cars and vehicles” component, which tumbled for around 1.7%. All other major components saw moderate increases, which is why the core reading actually printed an increase.

Canada

Forex Chart: Canada's Annualized CPI

The headline reading for Canada’s CPI for August held steady at 1.3% because 7 of the 8 major components were able to advance. The one and only drag was the “transportation” component, which slid down by 2.3% year-on-year due to a 12.6% slump in gasoline prices. By the way, Canada’s CPI reading for September is coming out this Friday, so make sure to mark your forex calendar for that event.

The U.K.

Forex Chart: U.K. Annualized CPI

The annualized and monthly headline September CPI readings for the United Kingdom slipped back into negative territory. However, the main drag to annualized U.K. CPI was not energy or fuel, but the “clothing and footwear” component, which dragged headline CPI down by 0.09%. This is followed by the “alcohol and tobacco” and “household and household services” components, which both declined by 0.03%. As to why this is so, the BOE already hinted in their meeting minutes that the pound’s strength is a source of deflationary pressure since it makes imports cheaper and domestic products less competitive. On a monthly basis, however, the main drag was the “transportation” component’s 0.41% downward contribution due to a 2.9% fall in the “fuels and lubricants” sub-component.

The Euro Zone

Forex Chart: Euro Zone Annualized CPI

After peaking at 0.3% back in May of this year, headline annualized CPI in the Euro Zone began sinking lower until it finally dipped into the red at -0.1% for the month of September. The main drag was the “fuels for transport” component, which declined by 14.2% and had a downward contribution to the final CPI reading of around -0.71%. Another major drag was the “heating oil” component. It only comprises 8.7% of the final CPI reading, but it had a downward contribution of -0.25% because of its -27.5% decline.

Switzerland

Forex Chart: Swiss Annualized CPI

Nothing has really changed for Switzerland, I guess – it’s inflation levels for September are still pretty horrible. Inflation components across the board still seem to be reeling from the strong Swissy brought about by the Swiss National Bank’s surprise decision to remove the floor on EUR/CHF way back in January of this year. Although headline CPI did see a pickup on a monthly basis (0.1% current, -0.25 previous) since many components saw slight increases, with the main drag being the 0.8% decline for transportation costs due to the recent slide in oil prices. The annualized reading also seems to be feeling the weight of sliding oil prices as well (-5.1% current, -4.6% previous).

China

Forex Chart: China's Annualized CPI

After four months of increases, China’s headline CPI for September finally saw a slowdown from 2.0% previously to 1.6% presently. Of the major components, 7 out of 8 had positive contributions to the headline reading. The only drag was the “transportation and communication” component, which posted a 2.1% slide due mostly to a 16.6% slump in the cost of fuels and parts for vehicles.

New Zealand

Forex Chart: New Zealand's Annualized CPI

New Zealand’s headline CPI for Q3 2015 rose by 0.4%, the same as Q2 2015. The main driver for the annualized reading was apparently the “cigarettes and tobacco” component, which soared by 13.0% due to an increase in excise tax. The main drags, meanwhile, were the “private transport services” and “telecommunication services” components, which were down by 24% and 4.2% respectively.

Japan

Forex Chart: Japan's Annualized CPI

Japan’s headline CPI reading for August is still in positive territory, but energy-related components are putting a lot of pressure on the Japanese economy, with the “fuel, light and water charges” component down by 5.9% and the “transportation and communication” component down by 2.7%. The core reading, meanwhile, is already in the red because the “fresh food” component is not included, and that particular component happens to be the main driver for Japanese inflation with its 2.7% increase.

Oh, for the newbie forex traders out there, do note that the sudden drop after March 2015 was due to an artificial boost from the 8.0% consumption tax. And for comparison purposes, just subtract 2.0% from the readings.

Conclusion

Except for the U.K. and New Zealand, it looks like the recent decline in oil prices are weighing-in on both the monthly and annualized CPI readings for most of the major economies.

Looking forward, there seems to be more downward risks for oil prices, with one of the major threats being the repeal of the U.S. oil exports ban. To those who are unfamiliar with the topic, just know that the U.S. House of Representative already passed a bill to repeal the ban back on October 9. President Obama is threatening to veto it, but we’ll have to wait and see what he’ll actually do. But if the ban is repealed, then the U.S. could become a major player in the oil market. And U.S. oil production for domestic consumption was actually one of the reasons why oil prices started slumping in the first place, according to Bank of Canada Governor Stephen Poloz.

 

 

  • ForExchange

    Hi Forex Gump,

    why is the Australian inflation not included neither in the table nor in the analysis? Nice article BTW!

    Cheers,
    FE

    • Hey ForExchange, Australia hasn’t printed any new quarterly inflation figures since my previous roundup but I’ll be sure to post updates in my analysis once the numbers are out next week. Thanks for checking out my blog as always!

  • Pingback: Monthly Economic Review: The United Kingdom()