global inflation
top 3 charts
7-Jan-2024. Core inflation should remain the main determinant of monetary policy in terms of the inflation data impact on policy. If we were to see some negative surprises, it would be closer to H2 2024.
7-Jan-2024. Change in core inflation year-on-year. In CEE countries, the dynamics are of course higher, but they will not affect the global sentiment. Core inflation in the US to be more closely watched. Some European countries have already released preliminary inflation data for December (based on local methodology, Eurostat will publish HICP data in mid-January). Based on local Polish flash data, it can be estimated that core HICP inflation increased in December in Poland by approximately +0.25%. This gives a decline in the annual dynamics to 5.89% (from 6.20% in November).
7-Jan-2024. The 3-month annualized rate in core inflation remains below 2% in EA, Czechia, Hungary and China. In Poland it jumped to 3.40% in December (estimate). In the USA, it also remains relatively high, as much as 3.39%. In Japan as much as 3.82%.
core global inflation Sep-23
18-Oct-2023. Core Inflation (CEE, Euro Area, US) and “major” deflation in Czechia Core Inflation rose much more strongly in CEE countries, from December 2019 to October 2023: Hungary +35%; Czechia +35%; Poland +31%; Romagna +26%. For the same period in the Euro Area (EA) only +12% and in the US +17% respectively (see chart 1). However, the situation is heading in the right direction... the last 3-month increases in core inflation (3-month annualized rates, chart 2) range from -0.84% (Czech Republic) to 3.58% in Poland. The exception is Romania with a 3-month annualized rate at stunning +18.4%. In Romania, monthly changes in core inflation are quite high, and in addition, in August we had increases in drug prices by 21% in one month, which resulted in a jump in core inflation only in August by +2.47 MoM. Conversely, in the Czech Republic we have "serious" deflation: all 4 main series (headline, core, energy & food) are negative on a 3-month annualized basis! - see chart 3. Could this be what awaits us in 2024? If virtually most central banks were wrong in 2021 by claiming that inflation is temporary, why couldn't it be the same now... most say that inflation is with us higher for longer...
Polish inflation Nov-2023
30-Nov-2023. Poland November Inflation. Good News: Monthly Core CPI only +0.1% MoM (estimate) Bad News: Monthly Headline CPI +0.7% Annual inflation slowed to 6.50%, while core inflation slowed to around 7.3% (estimate). The first chart compares local inflation to the HICP (here data until October 2023). The best is already behind us... a period of rapid inflation decline in Poland, which is also visible in the rebound in 3-month annualized inflation rates - see the second chart.
Euro Area Nov-2023 inflation
1-Dec-2023. Euro Area November (Dis-) Inflation. Headline monthly CPI for Euro Area: -0.55% Monthly Core CPI: -0.59% Energy monthly: -2.25% Food: +0.41% And the last 3-month inflation, at annualized rates: Headline CPI: -0.55% Core CPI: -0.55% Energy: -7.34% Food: +2.76% Today's dovish inflation data in the euro zone has raised expectations for the ECB rate cuts next year, bringing forward expectations for the first cut from May to April. At this moment, the market is practically pricing in 5 interest rate cuts (25 bps each) in 2024.
Nov-2023 inflation in Europe
19-Dec-2023. What has really happened since the pandemic can be shown by the cumulative change in inflation, e.g. since December 2019. The highest cumulative inflation is in Hungary +46.1%. Second place Poland +36.6%. The lowest cumulative inflation is in Switzerland, only +4.94%. For the Euro Area +17.5%. Details on the chart.
Japan Nov-2023 inflation
9-Dec-2023. Japan Inflation. Is inflation in Japan really a reason for the Bank of Japan to end its loose monetary policy relatively quickly? Last week, the yen strengthened significantly and bond yields jumped following Kazuo Ueda's comments on the future path of monetary policy. However, on the other hand, the market appears to have ignored the weaker November inflation reading for the Ku-area of Tokyo (widely considered to be leading for all-the-country inflation released later in the month). Additionally, on Friday, Reuters, based on its sources, reported that recent softness in consumption has presented itself as a source of concern for BoJ policymakers. Let's look at Japan's inflation data. The current spike in inflation (4.39% YoY in January 2023) has led to the highest headline inflation since July 1981 - Figure 1. In the case of core inflation (all litem less fresh food), we had the highest inflation (4.20% YoY in January 2023) since September 1981. In the case of the second measure of core inflation (all item less fresh food and energy), the highest inflation was in June 2023 (4.30%) – and this is the highest since June 1981. Figure 2 shows inflation since 2006. Inflation for the entire country for October 2023 was quite hot. Particularly strong monthly increases, starting with the headline (0.85%) and ending with Fresh Food (for the second month in a row above 5%) - see Figure 3. However, inflation for November for the Tokyo area turned out to be quite lower. None of the main measures increased in November (MoM: headline -0.28%; core inflation 0.00%; food -0.95%, fresh food -6.59% and Energy -0.71%). More about this inflation in part two.
9-Dec-2023. Japan Inflation. Part 2. Inflation in the Tokyo area for November 2023 was released on December 5, while inflation for the entire country will be known only on December 22. However, inflation in the Tokyo region is strongly correlated with the rest of the country, so it can practically be said that inflation for November is already in prices. See Figure 1. Headline year-on-year inflation in the Tokyo region decreased from 3.19% to 2.60% (monthly change -0.28%). Core inflation decreased from 3.83% to 3.63% (monthly change 0.0%). Fresh Food inflation decreased from 16.44% to 9.47% (monthly change -6.59%). And Energy inflation decreased from -14.22% to -16.65% (monthly change -0.71%). Figure 2 shows a comparison of core inflation since December 2019, and YoY for Japan, the USA, the Euro Area and Switzerland. Why Switzerland? Because Switzerland has the lowest inflation in Europe and is very similar to Japan in this respect. Comparing inflation to other countries, it is difficult to say that Japan has a problem with inflation. Additionally, the data for November looks encouraging. Hence the conclusion that unless inflation increases significantly, it should not significantly affect the monetary policy of the BoJ. Some policy tightening will occur, but it should be relatively gradual and small compared to other countries.
Japan Jan-2024 inflation
27-Feb-2024. Inflation in Japan for January (for the entire country) turned out to be hotter than expected (Figure 1). - Headline CPI in January was 2.10% (expected 1.9%), - Core inflation (ex-fresh food and energy) 3.52% (expected 3.3%), - Core inflation (ex-fresh food) 2.01% (expected 1.8%). After the publication, the yen strengthened slightly against the dollar (but only by some 0.1% immediately after the publication), which can be considered a lack of reaction. Maybe because the main trend in inflation is relatively clear - see Figure 2. The 3-month annualized inflation rate is: - for headline CPI: -0.74% - for core CPI: 0.00% - for core (only less fresh food): 0.00% Figure 3 shows the above 3 series from 2006 (YoY).
headline US Nov-2023 inflation
12-Dec-2023. Headline monthly inflation +0.10%, a bit above expected 0.0% (Cleveland Fed nowcast expected -0.01%). In October monthly change was 0.04%. Figure 1. Headline YoY in line with expectations +3.12% (October +3.23%). Energy, down more than -2% for the second month in a row. Food only +0.22% MoM, the weakest growth in 4 months. Core MoM +0.28% (in line with expected 0.3%; Cleveland Fed nowcast expected +0.33%). Core YoY +3.99% (was 4.02% - this is seasonally adjusted series, in the case of an annual change, a not-seasonally adjusted series is usually cited, for which the annual change was still above 4%, specifically +4.007%). 3-month annualized rates (Figure 2 and 3): Headline +2.17% (+4.37% in October), Energy -12.33% (+19.5% in October), Food +3.07% (+3.14% in October), Core +3.39% (+3.36% in October).
FED vs inflation
18-Dec-2023. How does the Fed fight inflation? One way to check is to compare whether the federal funds rate is below or above the annual change in core inflation (Figure 1). Interestingly, in the 1970s, the FED could not withstand the pressure and sharply reduced rates three times (these are the places marked on the chart as FED's errors). FED did not repeat this mistake in the 1980s, when, despite falling inflation, the federal funds rate remained above core inflation for a long time (until 1992). Powell's latest pivot raises the risk of repeating the Fed's mistakes from the 1970s. In March 2022, the difference between core CPI and the FED rate reached the highest value ever... The FED started the fight against inflation from a low level... Markets look at Core CPI and the FED looks at Core PCE (Core CPI is published earlier each month). But there is no major difference between these two series (Figure 2). Figure 3 shows the difference between the FED funds rate and the core PCE. Chart and conclusions similar to Core CPI. Interestingly, after the inflation adventure of the 1970s, the FED funds rate remained above Core PCE until 2002 (25 years).
18-Dec-2023. How does the Fed fight inflation? Part 2. We can also compare the federal funds rate to nominal GDP growth (Figure 1) and to the Taylor rule (Figure 2). The conclusions are similar to those for core inflation (both CPI and PCE) that the high interest rates in the 1980s helped ultimately defeat inflation. The question is whether the Fed will now keep rates higher for longer? These hopes were partially dashed after the last FMOC meeting. The Taylor rule, which estimates the central bank interest rate, appears in many versions, here I present the following one: the natural real interest rate estimated according to the Laubach-Williams 1-sided model, the inflation target is 2%, the inflation measure is Core PCE, and the real GDP gap according to CBO (Congressional Budget Office) estimates.
US energy Nov-2023 inflation
13-Dec-2023. US November Energy Inflation. Energy Inflation (6.963% of the total basket) consists of the following key series (Figure 1): 1) Energy Commodities (3.724% of the basket)... -5.80% MoM (was -4.85% in October) – the impact of only this series on the monthly change of the headline inflation amounted to -16 bps. Annual change of -9.78%. The main subcategory is Gasoline (all types) with a share in the basket of 3.438% - here MoM -6.02% and the impact of only this series on the monthly change of the overall inflation was -21 bps (the monthly change of headline inflation was +0.10%, i.e. 10 bps). 2) Energy Services (3.239% of the basket)... so this is really hot … +1.73% MoM and the strongest in 9 months. Annual change +0.02%. 3-month annualized rates (Figure 2): Energy (main series) -12.33% (+19.55% in October), Energy Commodities -29.21% (+34.20% in October), Gasoline (all types) -31.06% (+32.05% in October), Energy Services +11.57% (+5.09% in October).
US food Nov-2023 inflation
13-Dec-2023. US November Inflation. Food Inflation (13.42% of the total basket) consists of the following key series (Figure 1): 1) Food Away From Home (4.840% of the basket)... +0.43% MoM (was +0.37% in October) – so this is a little bit hot. The strongest growth in 5 months, annual change of +5.29%, 2) Food at Home (8.580% of the basket)... no inflation here for 9 months now.. +0.18% MoM and +1.66% YoY. 3-month annualized rates (Figure 2): Food (main series) +3.07% (+3.14% in October), Food Away From Home +4.92% (+4.54% in October), Food at Home +2.04% (+2.36% in October),
US core commodities Nov-23
13-Dec-2023. US November Inflation. Core Commodities Inflation (20.914% of the total basket) consists of the following key series (Figure 1): 1) Used Cars and Trucks (2.521% of the basket)... +1.58% MoM (was -0.80% in October). This is hot, after 5 months of price declines we have positive growth. YoY change still negative at -3.75%, 2) New Vehicles (4.231% of the basket)... no inflation here yet.. -0.06% MoM and +1.33% YoY, Figure 4 compares the inflation of Used and New Vehicles since 1953. It is interesting that car prices from the mid-1990s until the pandemic… they did not grow... and even fell in the case of used cars... 3) Apparel (2.549% of the basket) ... -1.29% MoM, the biggest decline since May 2020, yearly change only +1.19%. Such a decline subtracted as much as 3.2 bps from the monthly change in overall inflation. 4) Medical Care Commodities (1.465% of the basket).. +0.46% MoM, so on the hot side.. yearly change +4.98%. 3-month annualized rates (Figure 2 and Figure 3): Core Commodities (main series) -3.08% (-2.28% in October), Used Cars and Trucks -6.94% (-16.84% in October), New Vehicles +0.59% (+1.93% in October), Apparel -7.56% (-1.83% in October), Medical Care Commodities +2.38% (+2.78% in October).
US core services Nov-2023
12-Dec-2023. Core Services Inflation (58.703% of the total basket) consists of the following key series (Figure 1): 1) Shelter (34.967% of the entire basket)... +0.45% MoM (was 0.33% in October). Shelter consists of two main components: (i) rent of primary residence (7.658% of the basket) +0.48% MoM and (ii) Owner's Equivalent Rent of Residence (25.825% of the basket) +0.50% MoM, Rent of Primary Residence is the rental charge which consumers pay to rent their primary residence. OER is the rental equivalent homeowners expect to be paid if they were renting out their own home in the market. 2) Medical Care Services (6.339% of the basket)... and here is the problem +0.60% and this is the strongest growth in 13 months. The annual change is still negative (-0.88%), but prices have been rising for 4 months now, 3) Transportation Services (6.050% of the basket) … +1.06% MoM, the strongest in two months. Annual change as much as +10.09%. 3-month annualized rates (Figure 2 and Figure 3): Shelter +5.86% (+5.19% in October), Rent of Primary Residence +6.04% (+6.05% in October), Owner's Equivalent Rent of Residence +6.01% (+5.51% in October), Medical Care Services +5.08% (+2.83% in October), Transportation Services +10.83% (+14.81% in October).
US core inflation Nov-2023
12-Dec-2023. Core Inflation (79.617% of the total basket) consists of two main series: 1) Core Commodities (20.914% of the entire basket)… -0.30% MoM and this is the 6th month in a row with a negative change. Annual change -0.04% (was +0.02% in October and -0.03% in September)! 2) Core Services (58.703% of the basket)… +0.47% MoM… a bit much, if we ignore the monthly change for September (+0.57%), it would be the highest monthly increase since March 2023. Core Services YoY +5.49% (was 5.51% in October). 3-month annualized rates (Figure 2): Core Inflation +3.39% (+3.36% in October), Core Commodities -3.08% (-2.28% in October), Core Services +5.66% (+5.31% in October).
US PCE inflation Nov-2023
22-Dec-2023. Headline PCE inflation decreased 0.07% in November (0.0% expected), YoY rose by 2.64% (2.8% expected). So quite on the soft side. Core PCE monthly change was +0.06% and YoY +3.16%. PCE inflation is strongly correlated with CPI inflation (Figure 1 and 2). On a monthly basis, headline PCE was negative for the first time since the Covid recession (Figure 3). In the case of Core PCE, the last 3 months even look much better than CPI inflation (Figure 4). This is also clearly visible in the case of core inflation 3-month annualized rates (Figure 5). A rate cut in March is practically certain (right now 88% probability implied by 30-Day Fed Funds futures), although by March 20 we will get three more CPI readings and two PCE ones. Looking at the nowcast inflation (Cleveland FED), as of yesterday for the hedaline CPI we have a rebound in December to 3.33% (from 3.12% in November), and a decline in the case of core CPI to 3.93% (from 3.99 % in November).
March 2024 US CPI
11-Apr-2024. The Inflation Day My key takeaways after the next inflation day: 1) Red-hot inflation is bad news for short-term investors, the fourth monthly CPI reading in a row is a negative surprise and once again we have a strong jump in the yield of 10-year UST - see Figure 1. It may also be the beginning of a deterioration of the good sentiment on the stock market, which should get the message from higher interest rates at some point… 2) But for investors with a medium investment horizon, the second half of 2024 may bring positive surprises in terms of lower inflation, weaker growth, falling bond yields and greater chances for a soft landing scenario 3) In the current cycle, the market is completely unable to predict inflation, and therefore the path of Fed rate cuts, so it is difficult to assume that after yesterday's inflation it is any better... see Figure 2, as a reminder: - March 24, 2023, the epicenter of the regional banks crisis, which turned out to be a nothing-burger - the market was pricing in the first rate cut already in June 2023, - October 17, 2023 - the epicenter of the HFL (higher for longer) narrative, 10Y UST yield was 5%, the market estimated the first cut only in August 2024. Then, it was the perfect time to buy long US treasuries, e.g. iShares TLT ETF - which delivered a return rate of approximately 22% in the next 2 months, - January 12, 2024 - the market priced in 7 rate cuts by the FED in 2024 - April 10, 2024 - the market estimated only 1.5 rate cuts in 2024 4) Yesterday's inflation is a big problem for political incumbents in an election year. Bloomberg's Chris Antsey: “Obviously, this is very bad news for Joe Biden. It’s still only April, and we’ll have another half-a-year’s worth of inflation reports before the election. But we’re approaching the point where high inflation is bound to still be in voters’ minds when they head to the polls, regardless of how the price figures come in over summer.” President Biden joined the public discussion on rate cuts yesterday: "Well, I do stand by my prediction that, before the year is out, there'll be a rate cut. This (March inflation report) may delay it a month or so, I'm not sure about it. We don’t know when the FED is going to do for certain.”
April 2024 US PPI & CPI
15-May-2024. PPI review / CPI preview After all, PPI inflation, despite initially some hot headlines, turned out to be less scary at the end of the day and in fact we had a positive market reaction - which we have not had for many months in the case of PPI and CPI inflation releases (Figure 1). Yields of 10-year bonds fell by 5 bps from the PPI release until the end of the day... and shares (S&P500) rose by 0.5% at the end of the session to new highs (counting from the April lows). Today we see a further decline in the yields. PPI inflation measures the average change over time in the selling prices received by domestic producers for their output. The prices included in the PPI are from the first commercial transaction. PPI is strongly correlated with CPI - see Figure 2, but there are also significant differences in the composition of the indices. PPI doesn't measure housing prices/costs, and in the case of CPI it is as much as 1/3 of the entire basket (Shelter). Shelter inflation may drop significantly in the coming months and could even subtract up to 1 percentage point from the headline YoY CPI (detailed analysis here). PPI includes export prices and does not include import prices. Yet, CPI measures prices of imported goods. There is also a big difference in healthcare services as PPI includes third-party reimbursements. In the case of PPI health services it is about 17%, and in the case of CPI medical care has a weight of only some 8%. What the market expects from today's CPI inflation: Headline CPI MoM change +0.37%, core CPI +0.30% And Headline CPI YoY change +3.40%, core CPI +3.60% A possible positive surprise may show up in the Shelter inflation... see Figure 3. A monthly change of 0.35% could be quite well received by the market. Bonus chart – yesterday we got the results of the NFIB small biz survey on future pricing plans… and net percent of those planning to raise selling prices in the next 3 month dropped from 33% to 26% - see Figure 4.
US shelter inflation Apr-24
13-May-2024. Is the Shelter Inflation key in coming months? Could Shelter Inflation bottom in October-November this year? Just at the moment of US election… Today's YoY inflation is 3.50%, of which the Shelter contribution is as much as 1.971 percentage points (in other words, as much as 56% of the annual change in inflation is just Shelter). If Shelter falls from today's 5.7% to 2.5% in October this year – headline inflation would be below 2.5%, ceteris paribus. Shelter is 36.184% of the entire basket and consists of the following components: (i) Rent of Primary Residence (7.639% of the basket) and (ii) Owner's Equivalent Rent of Residence (26.713% of the basket), (iii) Logging away from Home (1.422% of the basket), (iv) Tenants' and Household Insurance (0.410% of the basket). Rent of Primary Residence is the rental charge which consumers pay to rent their primary residence. OER is the rental equivalent homeowners expect to be paid if they were renting out their own home in the market. These two series measure the market change in rents, but for all housing units. All units is key here. But the changes in new rents are strongly leading. E.g. Apartment List National Rent Index captures price changes in new leases, which are only later reflected in price changes across all leases. Figure 1 shows the change in rents since December 2019, while Figure 2 also shows the change in national home prices. Evidently, both new rent prices and home prices are significantly ahead of changes in rents in CPI inflation. Figure 3 shows the YoY changes. However, in Figure 4, the Apartment List Index and the National Home Price Index have been moved forward by 15 months. Figure 5 is key here. Changes to the Apartment List Index and the National Home Price Index are now on a separate axis... And they suggest a decline in Shelter inflation to levels of approximately 2.5% YoY in October 2024. In other words, one can expect headline inflation to decline by as much as about 1 percentage point by October this year - solely due to the drop in Shelter Inflation!
Apr-2023 CPI US vs Canada
21-May-2024. Inflation: US vs Canada Today we got the inflation data for April in Canada. Headline inflation decreased from 2.90% in March to 2.69% in April (YoY). The desinflation process north of the USA is accelerating! It's a good sign. As recently as December 2023, the difference between inflation in the USA and Canada was only 5bps. In April 2024 it is already 67 bps - see Figure 1. Core inflation looks even better, the difference between the US and Canada is already 95 bps in April! See Figure 2.
