Global inflation watch: Lift from commodity prices starting to fade
|Global pressures: Commodity prices have given a sharp lift to inflation, but the effect is fading due to base effects and lower momentum in oil and metals prices. However, bottlenecks remain widespread, delivery times are long and freight rates still very high.
Inflation expectations: Inflation expectations in markets and among consumers remain anchored in 2021 after rising from low levels in 2020.
US: Core inflation increased to the highest level in 30 years hitting 4.5% in June. Apart from the impact of commodity prices, it is mainly driven by effects related to the pandemic and the reopening, which has pushed up prices on used cars, airfares, lodging away from home, and restaurants. We expect these effects to be transitory. However, wage pressures are rising from a shortage of labour. We expect US core inflation to come down in 2022 but remain above 2%, see also Research US – Higher inflation but not spinning out of control due to still well-behaved expectations, 14 June 2021.
Euro: While headline inflation has risen to 1.9% y/y, core inflation remains low at 0.9% y/y. There is some pipeline pressure on core goods prices from the rise in commodity prices but wage inflation expectations should remain moderate and core inflation stay muted in 2022, see also Research Euro Area – Mind the inflation gap, 8 June 2021.
China: Chinese PPI inflation has peaked and PMI outprices have come down. CPI inflation remains far below the 3% target at 1.9% y/y with few signs it will run away. Chinese credit tightening points to downward pressure on commodity prices.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.