Forex Review: Global Inflation Update

Are consumer prices in the major economies seeing improvements now that oil prices are holding off from more losses? Let’s take a look at the latest economic releases and see if you can spot any forex trade opportunities. For forex newbies out there, you should know that central banks tend to look at inflation closely, as they give cues on overall consumer activity in the economy.

Forex Snapshot: Global Inflation in January

Forex Snapshot: Global Inflation in January

Take note that we are looking at annualized consumer price index (CPI), which measures the prices of a basket of consumer goods and services. Core CPI numbers exclude the impact of volatile items such as oil prices. While most economies release monthly numbers, others like Australia and New Zealand tend to release quarterly figures.

U.S.

  • Annualized CPI up from 0.7% to 1.4% in January, the highest since October 2014.
  • Core CPI up from 2.1% to 2.2%, above the Fed’s 2.0% targets for a third month in a row and the highest in four and a half years.
  • Driven higher by rent, transportation, and medical care.
  • 3 rate hikes in 2016 back on the table? Core PCE price index, the Fed’s preferred measure of inflation, is still at 1.4% (against 2.0% targets) in December.

Canada

  • Annualized CPI up from 1.6% to 2.0% in January, the highest reading since November 2014.
  • Core CPI up from 1.9% to 2.0% against January last year.
  • Food cost (+4.0%) and transportation (+2.2%) rose at a faster pace and gasoline prices rose for the first time since October 2014.
  • Since Canadians import a lot of their food, the weak Loonie might have factored in making food prices more expensive.

U.K.
UK

  • Annualized CPI up from 0.2% to 0.3% in January, the third consecutive rise and a 12-month high.
  • Core CPI settled down from 1.4% to 1.2%
  • Major boosts came from higher housing and utilities prices.
  • Don’t hold your hopes up. The BOE recently downgraded its growth, wages, and inflation forecasts.

Euro Zone
EZ

  • Annualized CPI up from 0.2% to 0.4% in January the fourth consecutive increase and its highest since October 2014.
  • Core CPI inches up from 0.9% to 1.0%.
  • Boosted by price of services (+1.2%) and cost of food, alcohol, and tobacco (+1.1%). Oil prices (-5.3%) still dragged the overall figures.
  • The ECB is targeting “close to but below 2.0%” inflation and is widely expected to introduce more stimulus in March.

Switzerland
Switzerland

  • Annualized CPI fell by another 1.3%, similar to December’s figures and the 15th consecutive decline.
  • No core CPI data in January, but December’s figures show 0.9% decline from November’s 1.0% downtick.
  • Prices were driven lower by declines in transportation (-4.6%), communication (-2.1%), and miscellaneous good and services (-2.1%).

Japan
Japan

  • No January figures yet but December’s 0.2% increase is slightly lower than December and November’s 0.3% uptick.
  • Core CPI stayed at 0.1% from November to December.
  • Consumer prices dragged lower by energy, transportation, and housing prices.
  • Will the muted inflation give the BOJ more reasons to deepen its negative interest rates?

China
China

  • Annualized CPI up by 1.8% in January, the highest since August 2015.
  • Core CPI unchanged at 1.5% in December.
  • Price acceleration was mainly due to the Lunar New Year celebrations and may not be sustainable.

Australia
Australia

  • Data released on a quarterly basis.
  • Consumer prices up by 1.7% through the year to December, up by 1.5% from Q3 2015. It’s the fastest growth since Q1 2014.
  • Core CPI up by 2.2% in Q4 2015, higher than Q3 2015’s 2.1% growth.
  • The RBA is targeting a range of 2.0% – 3.0% inflation, which is why it’s saying that Australia’s inflation “provides scope for further easing.” Yipes!

New Zealand
New Zealand

  • Data also released on a quarterly basis.
  • Q4 2015 consumer prices haven’t reflected the improvement in oil prices, only up by 0.1% vs. Q4 2014.
  • Lower oil (-7.0%) and vegetable prices (-17.0%) dragged numbers the most.
  • Recent inflation outlook reports reflect expectations of lower consumer prices, which support the RBNZ’s dovish bias.

Putting it all together:
While some major economies haven’t printed their January figures yet, we can see that the slight increases in oil prices (or even just the lack of further losses) have already pushed the consumer prices of other economies to their fastest paces in months.

If oil prices continue to improve and global inflation continues to respond positively to those gains, then some central banks might be inspired to chill out from their extreme easing measures and even contemplate on tightening their policies *cough* BOE *cough*. For now though, it looks like the consumer prices of the major economies are slowly recovering from the previous oil price slumps.