Global inflation watch: Hard data signals continuing disinflation
Overview: Underlying inflation continues to moderate both in the euro area and in the US. Inflation pressures ease gradually with weak goods inflation and in the case of the US, a more balanced job market. In the euro zone, wage growth remains elevated but is also now cooling. Markets' inflation expectations have risen modestly amid fiscal and trade policy uncertainty stemming from the US, but realized data shows little reason for concern. Oil prices have risen in early 2025, but mostly due to supply concerns linked to new sanctions on Russian exports.
Inflation expectations: Market-based inflation expectations have turned modestly higher but remain consistent with the 2% target. US consumers' inflation expectations rose across both 1y and 5y horizons in the latest University of Michigan survey, but other measures remain at modest levels.
US: December CPI came out close to expectations. Headline inflation accelerated to +0.39% m/m SA (2.9% y/y, cons. +0.3% m/m) due to higher energy prices, but core inflation moderated to +0.23 m/m SA (3.2% y/y, cons. +0.2% m/m). Growth in hotel prices calmed down after an unusual uptick in November, which together with core goods and health care contributed to easing core inflation. Importantly, shelter and broader non-housing services inflation remained on a cooling trend as well. We still forecast the next 25bp Fed cut in March.
Euro: Headline inflation rose to 2.4% y/y in December, as expected, up from 2.2% in November. This increase was mainly driven by energy base effects, while core inflation remained unchanged at 2.7% y/y. Core services showed monthly price increases on the high side with 0.3% m/m s.a., however, this comes after the very low print in November, so 3m/3m momentum continued lower in a positive sign for the ECB. Moreover, December's inflation figures resulted in Q4 average inflation 10bp lower than ECB staff predictions. Hence, December's data confirmed the narrative of weakening momentum in underlying inflation as momentum in services is coming lower while goods remain very low.
China: December CPI declined from 0.2% y/y to 0.1% y/y while core CPI rose to 0.4% y/y from 0.2% y/y. PPI increased to -2.3% y/y from -2.5% 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.
