Inflation numbers have been subdued around the world due to lower energy prices and the effect of major central bank economic easing policies. The United Kingdom, Canada and the United States will release inflation data next week that is expected to be inline with a low inflation forecast.
The G20 country aggregate inflation is starting to show signs that low inflation has bottomed out, however this is not the case in developed economies where low interest rates and stimulus programs are still common.
Low inflation complicates the central bank’s job harder as it is harder to justify a rate hike. The American employment component was the biggest supporter of an interest rate hike sooner rather than later, but even the indicator has started to soften as the growth skews more towards part-time and lower wage jobs. The Federal Reserve has mentioned in various official statements and member commentaries that low inflation is not a deterrent of a rate hike and that they will hike when the U.S. economic data shows that the economy can sustain higher rates.
A report in Bloomberg came out about the Bank of Canada looking at the possibility of raising its inflation target as a signalling device to avoid raising rates which could have a sudden impact in the housing market. The BoC has shown concern about housing prices that have been driven upwards by low interest rates. A hike could put a lot of Canadians in trouble as they debt levels are not sustainable and could trigger insolvency with a 50 basis points hike.
The Bank of England released its quarterly inflation report this week that came with a cut in growth forecast for the United Kingdom. Current rate of inflation in the U.K. stands at 0 percent, way below the target set by the central bank. BoE Governor Mark Carney has stated that this is transitory and after the effects of lower energy and food prices, inflation should go back to normal. Like the Fed the Old Lady of Threadneedle Street is not heavily concerned about deflation and will not proactively act to push it higher, but rather manage its expected rise as the central bank is focused on raising interest rates although with the slowdown in U.K. growth a rate hike could be pushed until next year.
Inflation events to watch this week:
Tuesday May 19
4:30am GBP CPI y/y
Friday May 22
8:30am CAD Core CPI m/m
USD CPI m/m
*All times EDT
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