Global Inflation Rising But Core Inflation Lagging

Global inflation has been on the rise over 2017 as the decline in oil prices has faded from annualised data a pickup in global growth has seen prices pressures increasing. Despite the general upward trend in headline CPI, however, underlying core CPI which is of more importance to central banks, has typical displayed choppy movement and aside from a few countries, has failed to map the positive momentum of headline CPI.

US Core CPI Falling Back

The latest inflation data for the US showed that CPI remains at 1.7%, its lowest level in over two years. Inflation has now missed for five consecutive months, falling from 2.3% in January to 1.7% currently despite inflation rising in other developed countries.  Core inflation in the US is expected to remain subdued over the remainder of 2017 but is expected to rebound in 2018 due to the depreciation in USD, faster rises in wages, labour market tightening and the receding influence of transitory factors.

UK Core CPI Stalled

In the UK, after rising to a peak of 2.7%, CPI has since fallen back to 2.6% where it has remained for two months, undershooting expectations of a further rise. Core inflation has also dropped back from 2.6% to 2.4% where it has remained unchanged for the last two months.

Eurozone Core CPI Remains Weak

In the eurozone, core inflation is much weaker, sitting unchanged at around 1% since 2014, despite sharp tightening in the labour market. Although economic health in the region is forecast to improve, there remains a large amount of spare capacity in the labour market, so an increase in wage-growth and core inflation is likely to be gradual.

Japanese Core CPI in Negative Territory

In Japan, core inflation has been in negative territory since February and looks likely to rise only very gradually. Unemployment has fallen to near record lows in Japan but is still yet to provide a boost to wages. There is also little indication that households are shifting away from their low inflation mindset. These two factors help to explain why the BOJ pushed back its inflation target at its recent meeting, with the timeframe for reaching its target now moved to FY2019 from FY2018. Recent comments by a board member suggest that the bank might, in fact, have abandoned reaching their target altogether.