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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.

Some of them even look at (or release) other indicators to get a better grip on the consumer spending picture.

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, on the other hand, excludes the impact of volatile items such as oil prices.

Oh, and while most economies release monthly numbers, others like Australia and New Zealand tend to release quarterly figures.

So, do the central bankers have good reasons to be hawkish or dovish these days? Let’s take a look at the major economies’ inflation numbers!

U.S.

U.S.' Inflation Rates
U.S.’ Inflation Rates
  • The Fed is targeting a core PCE rate of 2.0%.
  • Consumer prices rose by 1.7% from a year earlier in July. This is better than the 1.6% uptick in June but missed expectations of a 1.8% gain.
  • Annual prices of energy (+3.4%), food (+1.1%), medical care commodities (+3.7%), and transportation (+3.2%) all increased while inflation slowed for shelter (-3.2%) and medical care services (-2.3%).
  • Core inflation remains at its lowest levels since May 2015 as prices of services (-2.4%) and new vehicles (-0.6%) took hits.
  • Core PCE price index, which targets goods and services consumed by individuals and is reported to be the Fed’s preferred gauge, steadied in June as the increase in services spending was offset by decline in spending for durable and non-durable goods.
  • Healthcare was the main contributor to the increase in services, while lower gas prices led the decline in goods prices.

As mentioned in the July FOMC minutes takeaways, Fed members are growing concerned that consumer prices as well as inflation expectations are not improving as fast as they had expected earlier this year. BFD since Yellen and her team have yet to deliver the third rate hike they have hinted a few months ago.

Unfortunately, Fed members aren’t even sure about the reasons why the decline in prices is “one-off.” And with prospects of the government providing fiscal stimulus now looking grimmer than Jon Snow’s chances against the White Walker, investors are starting to doubt the chances of seeing another rate hike from the Fed this year.

China

China's Inflation Rates
China’s Inflation Rates
  • The People’s Bank of China (PBoC) is targeting a core inflation rate of 3.0%.
  • Annual prices in July grew by 1.4%, which marks the slowest pace of growth since April.
  • Food prices fell by 1.1% while non-food prices increased by 2.0%. Meanwhile, consumer goods costs shot up by 0.5% while services inched 2.9% higher.
  • Pay closer attention to factory gate (read: producer) prices in China, which has been growing for 11 consecutive months but hasn’t accelerated in the past three months.

Remember that government spending and easy monetary policy have kept China’s economy from a “hard landing” earlier this year.

But over the past few months authorities have prioritized reining in financial risks by tightening regulations and raising interbank lending rates, which could compromise the government’s goal to hit 3.0% inflation and a growth of 6.5% this year.

Will authorities continue to crack down on the companies’ financial risks? Remember that a potential slowdown in profit growth could affect the ability of companies to trim their debt levels.

Already companies have to deal with production cuts ahead of the pollution-friendly winter months while the government’s more recent tightening efforts have yet to show up on the charts.

If factory prices continue to fall, then we might see the government ease up on its tightening ways. But if producer price growth remains solid and consumer prices barely budge, then the government will have more room to restrict liquidity some more.

U.K.

U.K.'s Inflation Rates
U.K.’s Inflation Rates
  • The Bank of England (BOE) is targeting a 2.0% core inflation rate.
  • July’s annualized CPI and core CPI missed market expectations though July’s 2.6% headline reading is still within the BOE’s estimates.
  • Lower motor fuel prices dragged monthly consumer prices the most and was offset by smaller upward contributions from a range of goods and services including clothing, household goods, gas and electricity, and food and non-alcoholic beverages.

In its August statement the BOE upgraded its inflation forecasts. So why aren’t more MPC members (currently only 2 out of 9) pushing for a rate hike?

The answer is in the root of higher inflation. Carney and his gang are pointing to the impact of Sterling’s depreciation post-Brexit (not your good ol’ consumer spending) as the reason for higher prices.

But U.K.’s employment prospects are looking up and more MPC members are pointing out the decreased risks of tightening.

If jobs continue to improve and wages start to tick higher, then the BOE could act on its belief that “some tightening of monetary policy would be required.

Already the August statement contained relatively decisive statements like this:

“..if the economy follows a path broadly consistent with the August central projection, then monetary policy could need to be tightened by a somewhat greater extent over the forecast period than the path implied by the yield curve underlying the August projections.”

It also doesn’t hurt that BOE head honcho Mark Carney is feeling more pressure from his critics to tighten the BOE’s policies.

New Zealand

New Zealand's Inflation Rates
New Zealand’s Inflation Rates
  • The Reserve Bank of New Zealand (RBNZ) is targeting a range of 1.0% – 3.0% inflation rate.
  • Prices rose by 1.7% from a year earlier in Q2 2017, down from a five-year high of 2.2% in Q1.
  • Prices rose at a slower pace for housing and utilities (+3.1%), transport (+1.2%), miscellaneous goods and services (+1.7%), and alcoholic beverages and tobacco (+3.7%). Meanwhile, prices fell for telecommunications (-4.6%) and increased for food (+2.0%).
  • Tradable prices popped up by 0.9% while non-tradables rose by 2.4%.

Much like other central bankers, the RBNZ downgraded its inflation forecasts in its August statement.

Wheeler and his team now expect headline inflation to “decline in coming quarters as the effects of higher fuel and food prices dissipate” before settling below its average rates. However, consumer prices are also expected to recover thanks to “above-trend GDP growth.

Overall, it looks like the RBNZ is more worried about Kiwi’s recent strength instead of inflation and inflation expectations in New Zealand. As of August, the central bank’s bias remains neutral and its OCR track remains unchanged despite a lower CPI in Q2 2017.

That’s it for our snapshot today! Tomorrow we’ll take a peek at the inflation situation in Japan, Euro Zone, Australia, Canada, and Switzerland.