Global Inflation set to surprise on the upside- Danske Bank

According to analysts from Danske Bank global inflation is going to pick up due to the recent rise in commodity prices. They expect this to reduce the deflation scare further, thereby supporting the market pricing of inflation.

Key Quotes: 

“The recent rise in commodity prices is going to lift global inflation near term as the drag from the past oil price decline in particular fades. We expect higher global inflation to reduce the deflation scare further, which should affect the market pricing of inflation. Our forecast is for higher commodity prices, but even if we assume an unchanged oil price it indicates that global G3 inflation could rise towards 2.0% from the current level of 0.4% and up from the deflation limit of 0.0% in end-2015.”

“In the euro area we expect inflation to reach 1.5% early next year, which will be the highest rate since mid-2013. However, the higher inflation is going to be temporary as it is set to be driven by energy prices, whereas core inflation is likely to remain subdued.

“In the UK, both headline and core inflation are likely to rise considerably, especially due to the significant depreciation of the GBP. The weaker GBP implies higher import, food and energy prices.”

“In the US, we expect CPI headline inflation to stabilise around 2% next year due to the higher energy prices. CPI core inflation is not expected to move significantly higher as wage growth remains subdued.”

“In Japan inflation has always been far away from Bank of Japan’s target. BoJ’s new target should not change expectations much as it is not spelled out how to achieve higher inflation.”