Danske Research Team
Danske Bank A/S
Overview: Labour shortages persist pushing US wage inflation to the highest level in 10 years. Commodity prices eased over the past month, though, as gas, oil and coal prices are off the peaks. Bottlenecks continue to drive unusually long delivery times. Freight rates have stabilized at very high levels. We look for US core inflation to rise further and peaking somewhat above 5% in February 2022 before easing to around 2-1/2% by end-2022. In the euro we expect core inflation to peak now.
Inflation expectations: Market-based inflation expectations have moved to new cycle highs in both US and Europe over the past month (although it has declined from the peak over the past week). Survey-based inflation expectations are also on the rise in both US and euro area (especially short-term expectations).
US: CPI inflation was once again higher than anticipated in October, now running at 6.2% y/y, the highest rate since December 1990. Price increases are becoming more broad-based and not only driven by surging energy and food prices. Survey-based short-term inflation expectations remain very high but long-term measures remain well-anchored for now. 10yr breakeven inflation expectations are once again above the 2004- 07 average. Wage growth is increasing, most likely reflecting shortage of labour (not least within “leisure and hospitality” where wage growth is above 11% y/y).
Euro: HICP inflation rose to 4.1% in October, a new all-time high. Energy continues to be the main driver accounting for 2.3pp of the increase, due to higher natural gas and electricity prices. Although natural gas prices have declined some 40% from the peak, elevated energy price inflation is likely to stay with us in the coming months. As we enter 2022 and some of the inflation distortions will fade, it will be important to keep a close eye on wage developments, not least the big German bargaining rounds, see Research Euro Area - German wages: what to watch in 2022, 25 October.
China: Chinese PPI inflation rose to 10.7% in September, the highest rate in more than 25 years. CPI inflation is still well behaved at 0.7%.
This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector.
This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.
Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.
Recommended Content
Editors’ Picks
EUR/USD drops below 1.0550 ahead of PMIs, Powell
EUR/USD came under renewed bearish pressure and declined below 1.0550 during the European trading hours on Monday. The pair is weighed by a buoyant US Dollar amid higher US Treasury bond yields and a cautious mood. US ISM PMI and Powell's speech eyed.
GBP/USD struggles below 1.2200, awaits central banks' speakers
GBP/USD turned south and retreated to the 1.2150 area after spending the Asian session in a tight range near 1.2200. The souring market mood, as reflected by declining US stock index futures, weighs on the pair as markets await US PMI data and comments from central bankers.
Gold falls to fresh multi-month lows below $1,840
Gold price turned south and dropped to its weakest level since early March below $1,840. The benchmark 10-year US Treasury bond yield turned positive on the day above 4.6% following Friday's correction, weighing on XAU/USD ahead of Fed Chairman Powell's speech.
Week ahead: Fed speech and NFP likely to dictate crypto market moves this week
With the start of 2023’s fourth quarter, things are finally getting interesting in crypto. While the next 12 weeks are extremely important, let’s start by focusing on what to expect this week.
ISM Manufacturing PMI Preview: Worst for US factory activity could be over
The ISM will publish the United States September Manufacturing PMI today. The index is expected to have ticked modestly higher to 47.7 from its previous monthly reading of 47.6.