Week in FX Europe – Global Inflation On The Move

It’s no major surprise to see that global inflation has continued to pick up gradually in recent months. It reached +2.0% in July from +1.3% in the previous month. The ‘usual suspects’ have been affecting the non-core price component – increases in world food prices and heightened tension in the Middle East. The region that has had the biggest impact has to be the Emerging Markets – in recent weeks FX depreciation has been their downfall.

However, looking at core-inflation, it’s a totally different scenario, almost every economy has referred to subdued inflation via Central Bank rhetoric. Global core-inflation has stabilized at a relatively low +1.5%. Analysts note that the increase in global inflation “will only be slow as the elevated degree of inflation persistence (past events having an effect on present) should continue to keep inflation well under control.”

A common complaint from most countries is that they have “experienced a fall in persistence over time.” The success of inflation targeting will always be explained by central bankers – self-adulation. Investors nowadays expect any departures of inflation from target will be temporary if their country’s policy makers are ‘not asleep at the wheel.’ Central Bankers have a creed to apply “effective and credible policies” to stabilize domestic inflation.

Despite a widespread fall in global inflation ‘persistence,’ it does differ from country to country, having an impact on the conduct of monetary policy in a specific country. Next week, the Fed is the go to story. Despite the US being a country with relatively low inflation should not prevent the FOMC from tapering. Why not? Analysts note that a lower degree of persistence could mean that inflation could return in a short space of time.

In the euro zone, the high level of persistence allows Draghi and Carney room to keep its ‘forward guidance’ intact. For Governor Kuroda at the BoJ, the recent fall in persistence should support the BoJ in reaching a higher level of inflation. The Emerging Markets have been on top of it for a number of years, receiving kudos from the developed.


* EUR Euro-Zone Consumer Price Index
* GBP Consumer Price Index
* EUR German ZEW Survey (Economic Sentiment)
* USD Consumer Price Index
* USD Federal Reserve FOMC Two-day Meeting Begins
* USD Fed Pace of MBS Purchase Program
* USD Federal Open Market Committee Rate Decision
* USD Fed’s Bernanke Holds Press Conference in Washington
* NZD Gross Domestic Product
* CHF Swiss National Bank Rate Decision

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell