Global: What are the impacts of recent prices on financial policies?
2024-03-19
■ In the United States and the eurozone, inflation has accelerated since the beginning of the year, and the time to achieve inflation targets is being delayed.
■ Although the directionality of the slowdown in inflation remains unchanged, has the inflation process shifted from linear to volatile?
Inflation has peaked in the United States and the eurozone and has slowed around this time last year. However, monthly price increases have accelerated since the start of the year, with the early achievement of the central bank's 2% inflation target looking increasingly distant.
In the US February price index released last week, the core consumer price index (CPI, up 0.4% from the previous month) and producer price index (PPI, up 0.6% year-on-year) significantly exceeded the annual rate of 2% increase in January. From the perspective of the composition of core CPI, although the rise of goods (excluding food and energy) has been somewhat suppressed, the annual rate increase in housing and other service prices has exceeded 2%, intensifying inflationary pressure under the dominance of service prices. For commodities, PPI, which reflects upstream prices, has accelerated its rise since January. Although commodities have been suppressing inflation in CPI, their contribution is expected to weaken shortly. In addition, the reference indicator for the Federal Reserve's (FRB) inflation target, personal consumption expenditure (PCE) inflation rate, is based on the CPI item. However, due to some items such as air ticket prices and nursing services referencing PPI, and the significant increase in these items in February, it is expected, that the PCE inflation rate in February will continue the high rise in January.
In the Eurozone, the Consumer Price Index (CPI) rose at an annual rate of 2% in February, up 0.6% from the previous month. The main reason is that with the end of government support, energy prices have risen, but in February, service prices also saw their first month-on-month increase in seven months. Although it's not possible to confirm the breakdown of service items in the initial values, the European Central Bank (ECB) points out that inflation suppression, especially in services, is still quite slow in some wage-intensive projects.
Although the direction of the slowdown in inflation in the United States and Europe remains unchanged, the return to the smoothly achieved 2% inflation target so far is about to slow down. They have entered the most difficult "last mile", and the future inflation suppression process is expected to shift from linear to fluctuating. Given that the Federal Reserve and the European Central Bank still need to maintain a tight monetary environment after policy shifts, it is expected that interest rate cuts starting this year will proceed at a slow pace, following the slowdown in inflation, unless there are significant changes in the current economic environment.
■ Although the directionality of the slowdown in inflation remains unchanged, has the inflation process shifted from linear to volatile?
Inflation has peaked in the United States and the eurozone and has slowed around this time last year. However, monthly price increases have accelerated since the start of the year, with the early achievement of the central bank's 2% inflation target looking increasingly distant.
In the US February price index released last week, the core consumer price index (CPI, up 0.4% from the previous month) and producer price index (PPI, up 0.6% year-on-year) significantly exceeded the annual rate of 2% increase in January. From the perspective of the composition of core CPI, although the rise of goods (excluding food and energy) has been somewhat suppressed, the annual rate increase in housing and other service prices has exceeded 2%, intensifying inflationary pressure under the dominance of service prices. For commodities, PPI, which reflects upstream prices, has accelerated its rise since January. Although commodities have been suppressing inflation in CPI, their contribution is expected to weaken shortly. In addition, the reference indicator for the Federal Reserve's (FRB) inflation target, personal consumption expenditure (PCE) inflation rate, is based on the CPI item. However, due to some items such as air ticket prices and nursing services referencing PPI, and the significant increase in these items in February, it is expected, that the PCE inflation rate in February will continue the high rise in January.
In the Eurozone, the Consumer Price Index (CPI) rose at an annual rate of 2% in February, up 0.6% from the previous month. The main reason is that with the end of government support, energy prices have risen, but in February, service prices also saw their first month-on-month increase in seven months. Although it's not possible to confirm the breakdown of service items in the initial values, the European Central Bank (ECB) points out that inflation suppression, especially in services, is still quite slow in some wage-intensive projects.
Although the direction of the slowdown in inflation in the United States and Europe remains unchanged, the return to the smoothly achieved 2% inflation target so far is about to slow down. They have entered the most difficult "last mile", and the future inflation suppression process is expected to shift from linear to fluctuating. Given that the Federal Reserve and the European Central Bank still need to maintain a tight monetary environment after policy shifts, it is expected that interest rate cuts starting this year will proceed at a slow pace, following the slowdown in inflation, unless there are significant changes in the current economic environment.