Global Inflation Roundup: Signs of Spring?

Hello, forex buddies! Most of the latest CPI numbers for the major economies are in, so it’s time for another Global Inflation Roundup to see what’s driving or dragging global inflation, as well as to see if there are any patterns we can pick up.

Forex Updates: Annualized Headline CPI Forex Updates: Annualized Core CPI

Nice! The headline readings for most of the major economies are in the green, so inflation seems to be picking up, at least on the surface. The core readings are a bit more mixed, however. Anyhow, let’s take a closer look at each economy, shall we?

Oh, New Zealand and Australia release their CPI readings on a quarterly rather than monthly basis, so my commentary for their Q3 readings from my previous Global Inflation Roundup is still applicable. You can read it here.

The U.S.

Forex Updates: U.S. Headline CPI

U.S. headline CPI for November advanced by 0.5% year-on-year after rising by 0.2% in the previous month. This is the highest inflation rate in 2015 so far, and was mostly due to energy-related components being less of a drag. As examples, fuel oil was down by 31.4% (-32.9% previous) while gasoline was down by 24.1% (27.8% previous). As for the the annualized core reading (all items less food and energy), it increased by 2.0% after increasing by 1.9% previously, which is the highest core inflation rate ever since May 2014. The increase was mainly due to the continuing increase in the services component (+2.9% vs. +2.8% previous) and the commodities component being less of a drag (-0.6% vs. -0.7% previous).

Canada

Forex Updates: Canadian Headline CPI

Canada’s annualized headline reading for the November period increased by 1.4% (1.0% previous), which is the highest inflation rate rise for this year so far. 7 of the 8 major components being tracked were still increasing. The transportation index, which includes the gasoline sub-index (-10.6% vs. -17.1% previous), was still the one and only drag, but it had less of a negative impact in November (-1.1% vs. -3.2% previous), which is one of the main reasons why Canada’s headline CPI increased. Canada’s core reading did take a hit, however, due to lower rates of increase for 3 of the 8 major components, namely the “household operations, furnishing, and equipment” component (1.4% vs. 2.1% previous), the food index (3.4% vs. 4.1% previous), and the “health and personal care” component (1.4% vs. 1.6% previous).

The U.K.

Forex Updates: U.K. Headline CPI

Headline inflation in the U.K. ticked higher by 0.1% in November after a 0.1% downtick back in October, which was not really a surprise to most forex traders since BOE officials noted during their Dec. 10 MPC meeting minutes that “Inflation is expected to have been slightly positive in November.” Anyhow, the uptick was mainly due to the price of transportation (-2.1% vs. -2.6% previous) and “food and non-alcoholic beverages” (-2.4% vs. -2.7% previous) being less of a drag, together with a nice boost from the “miscellaneous goods and services” component (+1.3% vs. +0.8% previous). Incidentally, the boost from the aforementioned component is one of the main reasons why the core reading ticked higher too.

Euro Zone

Forex Updates: Euro Zone Headline CPI

The final reading for the euro zone’s headline November CPI saw another uptick to 0.2% after a 0.1% uptick back in October. The second consecutive uptick was due to a slower rates of decline in oil-related components, with the “fuels for transport” component down by 11.1% whereas it was down by 13.5% back in October. Meanwhile, the “heating oil” component was down by 23.8%, which is a still pretty horrible, but it’s a slight improvement over the previous month’s -24.7%. Among the major euro zone economies, Germany saw another uptick from 0.2% to 0.3%. In contrast, France (0.1% vs. 0.2% previous) and Italy (0.2% vs. 0.3% previous) both saw downticks. Spain, meanwhile, was still in negative territory, but it’s CPI reading recovered further to -0.4% from -0.9% previous.

Switzerland

Forex Updates: Swiss Headline CPI

Switzerland’s headline CPI reading declined by 1.4% year-on-year for the fourth consecutive month in November. Transport prices had slightly less of a negative impact (-4.9% vs. -5.0% previous), but the cost of miscellaneous goods and services (-1.1% vs. -0.8% previous) continued to drag the CPI reading down. Oh, to the forex newbies out there who are wondering by Switzerland’s CPI readings started dropping very rapidly after January of this year, just know that Switzerland is still reeling from the strong Swissy brought about by the Swiss National Bank’s (SNB) surprise decision to remove the floor on EUR/CHF way, way back in January of this year.

China

Forex Updates: Chinese Headline CPI

China’s headline CPI accelerated by 1.5% for the November period, breaking two consecutive months of slowing rates of increase. The core reading, meanwhile increased by 1.5%, which is the same rate as back in October. The “transportation and communication” component is still the one only drag to China’s CPI, but it’s less of a drag since it only dropped by 1.4% whereas it dropped by 1.9% in the previous month. The “fuels and parts for vehicles” sub-component, in particular, was only down by 12.4% whereas it was down by 15.5% back in October.

Japan

Forex Updates: Japanese Headline CPI

Japan’s headline CPI for October rose by 0.3% after flattening out back in September. Energy-related components are still the primary drags. The “fuel, light and water charges” component, for example, was down by 7.0% (-7.1% previous) while the “transportation and communication” component was down by 3.3% (-2.9% previous). Overall, energy was less of a drag, though, since the energy index was only down by 11.8% (-12.1% previous).

The core reading, meanwhile, was still in negative territory because the “fresh food” sub-component (+9.6% vs. +3.6% previous), which was the main driver for headline inflation, is not included.

As for the so-called “core-core” reading (headline less food and energy), which BOJ officials have been looking at recently,  it was up by 0.7%, which is slightly lower than last month’s 0.9%, due to lower rates of increase for the “culture and recreation” (2.0% vs. 2.2% previous) and miscellaneous components (0.7% vs. 0.9% previous).

For the newbie forex traders out there who are wondering what the sudden drop after March 2015 was about, just know that CPI got an artificial boost from the 8.0% consumption tax. You just subtract 2.0% from the readings for comparison purposes. Also, the November reading for Japan’s CPI will be released this coming Thursday (Dec. 24, 11:30 pm GMT), so make sure to mark that in your forex calendars if Christmas isn’t an official holiday in your country.

Summary

Overall, the decline in oil prices is still a major drag (if not THE major drag) on all of the major economies, but their negative impact has been noticeable less across the board for the November period, so it’s probably safe to expect that Japan’s November CPI readings next week will either be maintained or show improvements.

Looking forward, the decline in oil prices is bound to continue weighing down on CPI. And it could even get ugly since the 9.99% drop in oil prices during the November period probably hasn’t fully passed through yet, and Brent crude oil has already dropped by an extra 17.82% as of December 19.

Forex Updates: Brent Crude Oil 4-hour Chart

Brent Crude Oil 4-hour Chart

 

 

  • Ram

    Hi Forex Gump,

    When most of the data is negative how come Inflation rate is positive. For example., In Canada, oil price is dropped drastically past 2 weeks,

    Sorry this might be a irrelevant question as I’m still not clear regarding the basic fundamentals(Just completed the SCHOOLS :)). I am trying to interpret the details. It would be great help if you direct me on this.

    • Yiren

      Heya Ram!

      I hope you don’t mind if I try to answer your question. First off, there are drags and there are drivers. Drags, well, drag down inflation while drivers pump it up.

      In Canada’s case, its CPI tracks 8 major components. And as Forex Gump noted in his commentary, 7 out of 8 were still increasing, so that’s one drag versus 7 drivers, which is why Canadian CPI is still positive overall. It’s just that Forex Gump chose to focus on the drag. Also, each component has sub-components. The transportation index, for example, has the gasoline sub-index under it.

      If you wanna know what the major components that make up Canadian CPI are, just click the link provided by Forex Gump in his write up. Then look to the lower right, and you’ll see “Chart 2”. Those are the components. You can click on it for further details.

      Finally, the CPI readings referred to here are annualized readings from November, so the drop in oil prices in the past couple of week aren’t factored in just yet, but they’ll be a factor when the readings for December come out.

      Well, that’s it. And sorry for the wall of text, haha.

      • Ram

        Thanks a lot, Yiren

        • Ha! Looks like Yiren got it all covered while I was out on vacation, thanks man!