Weekly Economic Briefing

Technical inflation normalisation

26 April 2016

Global Overview

  • Global inflation rates are in the process of normalising in the near term, but mainly for technical reasons.
  • In the large developed economies, inflation is picking up as base effects from earlier falls in oil prices drop out of calculations. On the more important core inflation outlook, the US and UK are furthest along the path of exhausting spare capacity, which should permit some rise in policy rates over time.
  • Core inflation in the Eurozone and Japan should slowly move in the right direction, but reaching inflation targets by 2018 will be tough and require significant further easing measures. We expect the BoJ to try more shock and awe later this week.
  • The inflation outlook across the BRICs is more mixed. Normalisation in Brazil and Russia equates with falling inflation rates, mostly due to the fading effects of earlier currency depreciation and their deep and prolonged recessions.
  • On the other hand, Chinese inflation is being heavily influenced by the food cycle; pork prices in particular have risen substantially due to shortages but otherwise underlying inflation remains broadly stable and subdued.
>

US

Headline inflation is picking up as earlier oil price increases wash out of the numbers. Core inflation is also on an upward trajectory, though not on a scale that will unduly worry the Fed.

>

UK

UK inflation remains uncomfortably low, although there are signs that reflation is on the way. The Bank will use the labour market as its guide to how sustainable this is.

>

Europe

Eurozone inflation will get an optical boost over the coming months as oil price effects fade. However, the ECB will need to focus on other triggers to be confident that the region is reflating.

>

Japan & Developed Asia

The net effect of energy and currency movements on inflation is positive but not enough to restore credibility to the BOJ’s forecasts; more policy easing is coming.

>

Emerging Markets

Inflation is picking up in China due to food supply shortages but is falling elsewhere in the BRICs. The dynamics look positive in Russia and Brazil, while India will be at the mercy of its monsoon.

>
 

Standard Life Investments’ Global Strategy team provide regular analysis of the key economic data that has been influencing financial markets.

Available on a weekly basis, the Weekly Economic Briefing takes a detailed look at the global economic issues that have been impacting our investment strategy. The regional approach aims to provide an easy-to-navigate guide to the most recent developments in the global economy.

The views and conclusions expressed in this communication are for general interest only and should not be taken as investment advice or as an invitation to purchase or sell any specific security.

Any data contained herein which is attributed to a third party ("Third Party Data") is the property of (a) third party supplier(s) (the "Owner") and is licensed for use by Standard Life**. Third Party Data may not be copied or distributed. Third Party Data is provided "as is" and is not warranted to be accurate, complete or timely. To the extent permitted by applicable law, none of the Owner, Standard Life** or any other third party (including any third party involved in providing and/or compiling Third Party Data) shall have any liability for Third Party Data or for any use made of Third Party Data. Past performance is no guarantee of future results. Neither the Owner nor any other third party sponsors, endorses or promotes the fund or product to which Third Party Data relates.

**Standard Life means the relevant member of the Standard Life group, being Standard Life plc together with its subsidiaries, subsidiary undertakings and associated companies (whether direct or indirect) from time to time.