Yesterday we looked at the inflation situation for the U.S., China, U.K., and New Zealand.
Today we’re delving deeper into inflation trends in Japan, Euro Zone, Australia, Canada, and Switzerland:
- The Bank of Japan (BOJ) is targeting 1.1% inflation rate for 2017. LOL.
- Headline inflation grew by 0.4% as expected in June, which matches May and April’s rates.
- Core inflation (up by 0.4% in June) remains at its fastest pace since March 2015.
- Prices rose for food (+0.8%), fuel, light, and water charges (+3.5%), clothing and footwear (+0.2%), and education (+0.4%) and medical care (+0.3%). Meanwhile, prices fell for housing (-0.2%), furniture and household utensils (-0.8%), transport and communication (-0.1%), culture and recreation (-0.1%), and miscellaneous goods and services (-0.1%).
Kuroda and his gang continue to point to low inflation expectations as reason for tepid consumer price growth. This is likely why they kept their easing bias, saying that they’ll talk exit strategy “only after 2% inflation is achieved.” In other words, NEVER. Kidding. Maybe.
BOJ members are still hopeful, though. They cited the improving output gap, improving indicators, higher commodity prices, and a weak yen as possible reasons why inflation expectations could start looking up.
- The European Central Bank (ECB) is aiming for a 2.0% inflation target.
- EZ’s inflation rate stood at 1.3% in July, the lowest since December 2016.
- Accommodation services (+0.10%), package holidays (+0.06%), and air transport (+0.05%) boosted prices the most, while telecommunication (-0.11%), vegetables (-0.05%), and fruit (-0.04%) were the biggest drags.
- Lithuania (+4.1%), Estonia (+3.9%), and Latvia (+2.6%) have the fastest inflation rates while Ireland (-0.2%), Cyprus (-0.1%), and Finland (+0.6%) have slow rates.
- Inflation for the 4 largest economies: Germany (+1.5%), France (+0.8%), Italy (+1.2%), and Spain (1.7%).
In its July decision, ECB members shrugged off market expectations and maintained their policies AND biases, saying that “inflation is not where we want it to be, and where it should be.”
Draghi and his team believe that headline inflation is being weighed down by lower energy prices, and that underlying inflation has yet to show “convincing signs of a pick-up.” They added that the last thing they need is “an unwanted tightening” that could slow down the region’s economic momentum.
For now, members are AFK until they (hopefully!) make more interesting decisions “in the Autumn.” In the meantime, I hope they’re paying attention to the euro’s strength…
- Reserve Bank of Australia (RBA) is targeting an inflation range of 2% – 3%.
- Headline inflation is down from a two-and-a-half-year high of 2.2% to 1.9% in Q2.
- Costs went up for housing (+2.4%), transport (+2.1%), insurance and financial services (+2.1%), and good and non-alcoholic beverages (+1.9%). Meanwhile, costs were lower for clothing and footwear (-1.9%), communication (-3.8%), and recreation and culture (-0.1%).
- In a nutshell, the deflationary effect of discounting due to increased retail competition was offset by higher tobacco and utilities prices.
RBA didn’t sound too worried over inflation in its August statement on monetary policy, saying that “there has been little to change to the forecast” they made back in May.
Lowe and his team did reveal that they’re expecting higher inflation in the next year due to higher utilities prices and the legislated tobacco excise increases.
They also didn’t shy away from jawboning the Aussie. Not only does the RBA believe that a strong currency is expected to “contribute to subdued price pressures in the economy,” but it also remarked that “an appreciating exchange rate would…result in a slower pick-up in economic activity and inflation than currently forecast.”
Inflation is mostly within the RBA’s target range, so the central bank isn’t much worried about it. Pay attention to further gains in the Aussie, though, as some point out that, under the RBA’s currency modelling, a strong currency could weigh on core inflation by as much as 0.5% in the next three years. Yipes!
- Bank of Canada (BOC) is aiming for 2.0% inflation, the middle of its 1.0% – 3.0% target range.
- Gasoline (+4.6%) and alcoholic beverages and tobacco products (+2.9%) pushed headline inflation higher, while household operations, furnishings and equipment (-0.1%) and clothing and footwear (-0.1%) were the main drags.
- Core inflation remains at 0.9% for a third month in a row, and is the lowest rate since February 2011.
Just last month BOC raised its rates for the first time in seven years, citing “confidence in the outlook for the economy and inflation.”
Though Poloz and his team acknowledged that “CPI inflation has eased in recent months and the Bank’s three measures of core inflation all remain below 2 per cent,” they also believe that the current “factors behind soft inflation appear to be mostly temporary.”
Overall, the BOC seems content to shrug off weaker-than-expected inflation data in favor of positive growth outlook and other “indicators in the models that predict inflation.” It can even continue raising its interest rates since Poloz continues to believe that “the interest rate cuts we put in place in 2015 have largely done their work.”
- Swiss National Bank (SNB) considers a CPI of less than 2.0% as “consistent with price stability.”
- Prices rose for food and non-alcoholic beverages (+0.3%), housing and utilities (+1.0%), transport (+0.4%), recreation and culture (+0.9%), and restaurants and hotels (+0.5%). Meanwhile, costs fell for health (-0.6%).
In its quarterly bulletin published in June, the SNB recognized that “consumer prices have been slightly higher than a year earlier” but that “upward pressure on prices continues to be subdued and has not extended to all product groups.”
Thomas Jordan and his gang expect inflation to average 0.3% this year and in 2018 before shooting up to 1.0% in 2019. Overall, they expect prices to remain “in the low positive range,” (read: below 2.0%) which they consider as “consistent with price stability.”
Putting it all together
Compared to the second half of 2016, we can see that prices have generally improved for many major economies.
Central banks like the Fed, ECB, and BOJ continue to watch inflation growth (or the lack of it) closely for cues on its next policy decisions.
Other banks have shifted their focus to different concerns, however. The RBA, RBNZ, and SNB, for example, are more worried about a strong currency. The BOC is happily focusing on economic growth, and the BOE has its eyes on wage growth.
So how can you trade these information? Well, a good way to start is by looking at what exactly is pushing consumer prices higher.
If inflation accelerates because consumers are getting jobs and getting more confident, then there’s a higher chance that more central banks will turn to the hawkish side. But if prices are rising due to other factors (like a low exchange rate), then we might see more central banks shrug off inflation reports.