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Global Inflation Watch
Higher inflation on food and energy
Chart 1: Eurozone HICP Energy & Brent (EUR)
Strong food and energy inflation is characterising the
CPI data across the US and Europe for December.
We have already seen inflation pick up to 2.2% y/y in
the euro area in December on these two factors; the
first 2%+ print since late 2008. Similar dynamics
drove Swedish inflation to a two-year high in
December too.
Energy inflation has risen on a combination of base
effects and an increase in the price of oil. In the euro
area its rise has also been boosted by the sharp fall
in the euro exchange rate in November. Food
inflation is also moving north, as the soft commodity
price shock that started in H2 2010 filters through to
consumer prices.
In contrast, core inflation remains at muted levels in
both the US and the euro area. The breakdown
provided with Friday’s final eurozone HICP release,
for example, should reveal that core inflation
remained constant at 1.1% y/y for the third month in
a row.
Similar dynamics are expected in the US on Friday.
We are expecting a 0.5% m/m gain in the headline
index on stronger energy and food prices, which
would push headline inflation up 0.3pp to 1.4% y/y,
its highest level since last May. But with the core CPI
expected to rise 0.1% m/m for a second month
running, that would push the y/y rate of core inflation
down 0.2pp to 0.6% y/y – equal to October’s record
low.
The UK is another story. In addition to stronger food
and energy inflation, the UK’s CPI and RPI are being
boosted by the impact of past sterling weakness and
indirect tax increases.
In December, we expect CPI inflation to have
accelerated by 0.3pp to 3.6% y/y. The acceleration is
likely to reflect the combination of rising food,
transport, gas and electricity inflation while core
inflation should hold at 2.8% y/y. Regarding the rise
in utility price inflation, three of the major providers
have announced price increases that will be captured
by the December CPI. These are likely to push up
the gas component by 5% m/m and the electricity
component by just under 3%. There is more to come
in January given announcements from other
providers – we are expecting 4%+ and 5%+ prints on
CPI and RPI inflation, respectively, in the first couple
of months this year.
Source: Reuters EcoWin Pro, BNP Paribas
Chart 2: US Core CPI Inflation
Source: Reuters EcoWin Pro, BNP Paribas
Chart 3: UK CPI and RPI Inflation
Source: Reuters EcoWin Pro, BNP Paribas
Luigi Speranza/Eoin O’Callaghan 13 January 2011
Market Mover
42
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