Partner Center Find a Broker

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

Core Inflation of Major Economies
Core Inflation of Major Economies
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.

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

U.S.

US

  • Annualized CPI shot up from 1.7% to 2.1% in December. This marks the fifth month of acceleration as well as the fastest growth since June 2014.
  • December’s CPI report was pushed higher by increases in gasoline (+3.0%) and shelter (+0.3%) prices.
  • Core CPI also ticked higher to 2.2% after growing by 2.1% in November and October.
  • Core PCE price index, which targets goods and services consumed by individuals and is reported to be the Fed’s preferred gauge, stands at 1.6% in November. The Fed is aiming for a 2.0% target.

China

china

  • Annualized CPI slipped from 2.3% to 2.1% in December, while core CPI remained at 1.9% for the month. The government’s target is at around 3.0%.
  • On a monthly basis, prices went up by 0.2% in December, the second consecutive month of increase.
  • Analysts are paying more attention to producer inflation, which clocked in its fourth consecutive monthly increase and a 5.5% annualized growth – the fastest since September 2011 – thanks to higher coal and building materials.

Japan

japan

  • Headline CPI rose by 0.3% in December after rising by 0.5% in November.
  • Core CPI fell by 0.2% from a year earlier, the smallest decline in 10 months.
  • Tokyo’s core CPI, a closely-watched leading indicator, clocked in at -0.3% in January after December’s -0.6% reading.
  • The BOJ’s core CPI release is at 0.1% in December, slower than 0.2% uptick in November.
  • The BOJ has a target of 2.0% inflation and is expecting prices to rise by 1.5% in 2017 and 1.7% in 2018. LOL.
  • Thanks to stingy wage hikes, a faster inflation is pushing Japanese consumers to tighten their purse strings instead of buying goods and services while they’re relatively cheaper.

Euro Zone

euro-zone

  • Consumer prices grew by 1.1% from a year earlier in December after rising by 0.6% in November. This marks the fastest growth rate since September 2013.
  • Fuels for transport (+0.21%), vegetables (+0.07%), and heating oil (+0.05%) boosted the overall prices, while gas (-0.10%), telecommunications (-0.05%), and personal care products (-0.04%) dragged it lower.
  • The ECB is aiming for a target of “below but close to 2.0%.”

U.K.

uk

  • Annualized CPI shot up from 1.2% to 1.6%, the fastest rate since July 2014.
  • Core inflation is also at 1.6%, the highest reading since August 2014.
  • A weaker pound has pushed transport (+3.7%) and housing and utilities (+0.4%) higher while food prices (-1.1%) fell the least since August 2014.
  • On a monthly basis, CPI increased from 0.2% to 0.5% – the fastest since February 2014 – thanks to higher transport (+2.9%), air fares (+49.0%), and food cost (+0.8%).
  • The BOE is willing to let inflation overshoot its estimates due to pound weakness, but it has warned that “there are limits to the extent to which above-target inflation can be tolerated.”

Canada

canada

  • Headline CPI is at 1.4% in December, higher than November’s 1.2% but lower than the expected 1.7%.
  • Core CPI came in at 1.6% from a year earlier, better than November’s 1.5% reading.
  • Higher gasoline and electricity costs are being offset by a third consecutive monthly decline in food prices. The last time annualized food prices fell for three consecutive months was in 1990.
  • ICYMI, the BOC now has 3 measures of inflation: CPI-common (+1.4%), CPI-median (+2.0%), and CPI-trim (+1.6%).
    The BOC is targeting a 2.0% CPI and has estimated a CPI growth of 2.1% in 2017. Despite that, Stephen Poloz has warned that “a rate cut remains on the table.

Australia

australia

  • Data released on a quarterly basis
  • Headline inflation rose to 1.5% in Q4 2016, the highest inflation rate since December 2015.
  • Core CPI slipped to 1.6% after growing by 1.7% in the last three quarters.
  • Faster increase in food and housing prices offset the decline in transport costs.
  • The RBA’s closely-watched weighted mean CPI rose by 1.5%, higher than the 1.5% growth in Q3.
  • The RBA is aiming for 2.0% – 3.0% consumer price growth.

New Zealand

new-zealand

  • Data released on a quarterly basis
  • Prices rose by 1.4% from a year in Q4 2016, marking the fastest CPI since Q3 2014.
  • Increases in housing-related prices continue to drive prices higher, which is only partially offset by declines in transport costs.
  • The RBNZ is targeting a range of 1.0% – 3.0% inflation rate.

Switzerland

switzerland

  • Consumer prices in Switzerland remain unchanged from a year earlier in December after declining in the last 25 MONTHS.
  • Prices fell by 0.4% in average in 2016, in line with analyst and the SNB’s estimates.
  • Housing costs and utilities (+1.5%) and food and non-alcoholic beverages (+0.9%) are the main boosters, while health (-0.6%) and transport (-0.3%) dragged.

Putting it all together:
There’s no denying that consumer prices are starting to catch up to the recovery in oil prices. Taking out increases in fuel prices, however, shows us that consumer spending habits are still waaaay lower than what most central banks would like them to be.

Market players are now paying closer attention to the reason behind strong inflation rates. Remember that they want to see consumer prices rise because consumers are actually buying goods and services.

But if prices only rise due to unsustainable factors such as a weak currency, commodity price fluctuations, and financial market speculations, then a high inflation won’t really translate to stronger economic growth.

For now, it looks like major central bankers are still shrugging off improvements in inflation. The BOE, for example, is willing to tolerate a higher inflation since prices mostly rose because of Brexit anyway.

The ECB is also downplaying CPI increases, saying that they’d have to be sustainable before we see some tightening. Last but definitely not the least is the BOJ, which is still buying government bonds left and right because slow wage increases are forcing Japanese consumers to hoard, not spend, their moolah despite rising consumer prices.

So how can you trade these information? Well, a good way to start is by looking at what exactly is pushing consumer prices higher. Then, look at the country’s employment picture and see if jobs and wages are improving enough to warrant increases in consumer spending.

If wages are rising and consumers are getting more confident, then there’s a higher chance that central banks will pay attention and tighten their policies. That means less monetary stimulus or more rate hikes, yo!

These are some of our favorite trading books if you want to get in deeper with macro economics & trading psychology. BabyPips.com receives a small credit from any purchases through the Amazon links above to help support the free content and features of our site…enjoy!