Broader service price pressures in the US
Overview: Inflation in October came in higher than expected in the US and euro area. Momentum in underlying inflation remained rather stable in Europe. In the US price pressures broadened outside energy.
Inflation expectations: Marked-based inflation expectations declined markedly in the past month as the oil price plunged. Even the longer-term 5y5y inflation swaps fell around 10bp in both the US and euro area.
US: CPI showed signs that price pressures are broadening. Headline inflation moderated to 0.4% m/m SA, down from 0.6% in August, as retail energy prices did not rise much further. Inflation had been expected to slow more significantly, but core inflation came in at 0.3%, with signs of broader price pressures. There were no obvious one-off factors explaining the upside surprise, which was driven particularly by services. Shelter prices rose by 0.3%, above 0.25% for the third consecutive month, while super-core services increased by 0.52%.
Euro area: Headline inflation rose to 4.0% y/y in October from 3.8% y/y in September, slightly above expectations due to a surprise in Italy. The uptick was driven by energy prices, while core inflation was unchanged at 2.5% y/y amid broadly stable momentum. Since the start of the war in Iran core goods momentum has picked up somewhat, but it remains at a low level, while services momentum has been stable. The October print thus paints the same picture as in recent months, with inflation mainly driven by energy and limited spillovers to broader inflation categories.
China: PPI rose again in October from 5.0% y/y to 5.7% y/y lifted by commodity and chip prices. Export prices were up 14.7% y/y driven by chips and electronics. Core inflation dropped from 1.0% y/y to 0.8% y/y.
Author
Danske Research Team
Danske Bank A/S
Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.
