Weekly Economic Briefing

Sputtering Prices

28 March 2017

Global Overview

  • Headline inflation has increased across a range of economies due to positive base effects from higher 2016 energy prices. Once base effects pass through, CPI prints are set to decline as oil prices stabilise.
  • The US represents one of the few large economies with labour market pressures driving stronger core inflation. Although still below the Fed’s target, core PCE should continue to move higher.
  • Europe is showing diverging headline inflation prints with Germany and Spain above the ECB’s target, but France well below. Despite higher headline prices, underlying inflation pressures are still largely absent.
  • In the UK, sterling depreciation could have longer-lasting price implications even after energy base effects pass through. However, the impact on growth and monetary policy is less clear.
  • Japanese inflation will remain well below target absent an import price or growth surprise. And China is unlikely to play a role in driving inflation higher; despite rising PPI, consumer prices are little affected.
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US

Energy inflation is set to peak, leaving headline inflation to be driven by core inflation developments. There are still reasons to expect reduced slack to feed through to stronger underlying numbers, albeit slowly.

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UK

UK inflation is rising rapidly on account of energy prices and sterling depreciation. This will test the patience of the Bank of England, especially if we don’t see more evidence that growth is slowing.

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Europe

Headline inflation in the Eurozone has surpassed the ECB’s target rate of closer to, but below 2%. However, this is likely a transient high that the Council will look through.

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Japan & Developed Asia

Inflation in Japan is rising for technical reasons. The prospect of this leading to the attainment of the Bank of Japan’s 2% price target remains remote.

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Emerging Markets

Surging producer prices in China are due to a combination of factors including higher energy prices, capacity cuts and stronger demand. Most are set to weaken.

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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.

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