Friday, March 7, 2014

Inflation Trends in Developed Economies

Across developed economies, food inflation and housing related inflation remains contained (even in UK!!). Energy related components have been on a downward trend as well.

UK CPI Harmonized  - In recent time, UK HICP has been mostly dominated by housing, education and eat-out costs. Food and beverages inflation has been steadily decreasing, and the rest totally subdued

US CPI (Urban Consumer)  - Similar story in the US. CPI mostly propped up by Housing, and Health Care components. F&B going down steadily. Rest negligible

Germany CPI  - In Germany, Housing against is a significant component. Followed by food and beverages and recreation.

Euro-Area MUICP - Euro Area MUICP contraction has been way below ECB target. The major propping up component for other regions, i.e. Housing , seems to give in in case of Euro Area

Japan CPI (Nationwide) - The recent spike in inflation in Japan mostly driven by import and energy related cost. More closely linked to yen depreciation and Fukushima closure than a case of consumer demand driven one

As most recovering markets nears the unemployment rate thresholds of the central banks, inflation will once again become the focus. And any divination based on past data continues to make a case for “Low for Long”. We have seen little evidence of strong productivity growth. In UK, actually improvement in unemployment has been accompanied by fall in productivity. And consumer credit growth remains weak. Without gain in productivity, there will be little wage pressure to drive demand-driven inflation. However, we think the surprise , if any, can come from the US.

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