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Global Inflation Watch April Inflation: Easter Effect Unwinding The eurozone flash estimate for April printed 1.5% y/y, up 0.1pp on the month and the highest rate since December 2008. We will have to wait until mid-May to get the breakdown, but we expect it to reveal that the rise in inflation over the month was purely driven by food and energy inflation. Energy price base effects are now past, but a rise in oil prices over the month to above USD 85/bbl should have pushed up energy inflation. In addition, food price base effects are only now really kicking in and point to a rise in food inflation through the rest of the spring and the summer. In contrast, core inflation should have declined sharply in April after rising in March, as the timing of Easter continued to play havoc with the data. Nearly all the strength in core in March was explained by just two components – package holiday and hotel prices. Because Easter fell in early April this year, we believe that some of the traditional Easter strength you typically see in these components bled into the March data. As a result, this should have unwound in April, pushing core back down to a new record low of 0.7% y/y. These dynamics are consistent with what we saw in the weak preliminary German data, which suggested that core inflation there fell by 0.7pp in April to reach 0.2% y/y. Easter distortions will finally work their way out in May, when core inflation is likely to increase again but finish at a lower level than in February, confirming that the trend in core inflation remains downwards. We will get more insight into the dynamics for April in the coming week with data for France, Spain, Italy and Germany. The French data is the most important release – we have already had preliminary data for the others. We expect French CPI inflation to have ticked higher in April by 0.1pp to reach 1.7%, its highest level since November 2008. The move should be entirely due to energy – following a near 10% hike in the regulated price of natural gas. In contrast, core inflation should have eased, even though the French data are typically not as affected by Easter seasonality as the German numbers. Service price inflation should prove the driver, pushed lower by declining wage costs. Chart 1: Package Holiday Prices (Spain and Germany) Source: Reuters EcoWin Pro, BNP Paribas Chart 2: Eurozone HICP (% y/y) Source: Reuters EcoWin Pro, BNP Paribas Chart 3: French HICP (% y/y) Source: Reuters EcoWin Pro, BNP Paribas Finally, note that there is a chance that core inflation turned negative in Spain when we get the breakdown in the final release on 14 May. Luigi Speranza/Eoin O’Callaghan 7 May 2010 Market Mover 48 www.GlobalMarkets.bnpparibas.com
Table 1: BNP Paribas' Inflation Forecasts Eurozone France US Headline HICP Ex-tobacco HICP Headline CPI Ex-tobacco CPI CPI Urban SA CPI Urban NSA Index % m/m % y/y Index % m/m % y/y Index % m/m % y/y index % m/m % y/y Index % m/m % y/y Index % m/m % y/y 2009 108.1 - 0.3 107.9 - 0.2 119.3 - 0.1 118.0 - 0.1 214.5 - -0.3 214.5 - -0.4 2010 (1) 109.6 - 1.4 109.3 - 1.3 121.2 - 1.6 119.8 - 1.5 218.7 - 1.9 218.7 - 2.0 2011 (1) 110.8 - 1.0 110.3 - 0.9 122.5 - 1.1 121.0 - 1.0 220.8 - 1.0 220.8 - 1.0 Q3 2009 108.0 - -0.4 107.8 - -0.5 119.4 - -0.4 118.1 - -0.4 215.4 - -1.6 215.7 - -1.6 Q4 2009 108.6 - 0.4 108.4 - 0.3 119.7 - 0.4 118.4 - 0.3 216.8 - 1.5 216.2 - 1.4 Q1 2010 108.6 - 1.1 108.3 - 1.0 120.3 - 1.3 119.0 - 1.2 217.6 - 2.4 217.0 - 2.4 Q2 2010 (1) 109.9 - 1.5 109.6 - 1.4 121.4 - 1.7 120.1 - 1.6 217.8 - 2.0 218.8 - 2.1 Q3 2010 (1) 109.7 - 1.5 109.3 - 1.4 121.4 - 1.7 120.1 - 1.6 219.1 - 1.7 219.4 - 1.7 Q4 2010 (1) 110.4 - 1.7 110.1 - 1.6 121.6 - 1.6 120.3 - 1.6 220.3 - 1.6 219.7 - 1.6 Q1 2011 (1) 110.1 - 1.4 109.7 - 1.3 121.9 - 1.3 120.5 - 1.3 220.5 - 1.3 220.0 - 1.4 Q2 2011 (1) 110.9 - 0.9 110.5 - 0.8 122.6 - 1.0 121.2 - 0.9 220.6 - 1.3 221.5 - 1.3 Jul 09 107.8 -0.7 -0.7 107.51 -0.7 -0.8 119.1 -0.4 -0.7 117.80 -0.4 -0.7 214.8 0.1 -2.0 215.35 -0.2 -2.1 Aug 09 108.1 0.3 -0.2 107.89 0.4 -0.3 119.7 0.5 -0.2 118.41 0.5 -0.2 215.6 0.4 -1.5 215.83 0.2 -1.5 Sep 09 108.2 0.0 -0.3 107.91 0.0 -0.5 119.4 -0.2 -0.4 118.12 -0.2 -0.4 215.9 0.2 -1.3 215.97 0.1 -1.3 Oct 09 108.4 0.2 -0.1 108.16 0.2 -0.3 119.5 0.1 -0.2 118.23 0.1 -0.2 216.4 0.2 -0.2 216.18 0.1 -0.2 Nov 09 108.5 0.1 0.5 108.28 0.1 0.4 119.6 0.1 0.4 118.31 0.1 0.3 216.9 0.2 1.8 216.33 0.1 1.8 Dec 09 108.9 0.3 0.9 108.61 0.3 0.8 120.0 0.3 0.9 118.60 0.2 0.8 217.2 0.2 2.8 215.95 -0.2 2.7 Jan 10 108.1 -0.8 1.0 107.75 -0.8 0.9 119.7 -0.2 1.1 118.32 -0.2 1.0 217.6 0.2 2.7 216.69 0.3 2.6 Feb 10 108.4 0.3 0.9 108.09 0.3 0.8 120.4 0.6 1.3 118.99 0.6 1.2 217.6 0.0 2.2 216.74 0.0 2.1 Mar 10 109.4 0.9 1.4 109.09 0.9 1.3 120.9 0.5 1.6 119.58 0.5 1.5 217.7 0.1 2.4 217.63 0.4 2.3 Apr 10 (1) 109.8 0.4 1.5 109.54 0.4 1.4 121.3 0.3 1.7 119.97 0.3 1.7 217.7 0.0 2.3 218.52 0.4 2.5 May 10 (1) 110.0 0.2 1.6 109.72 0.2 1.5 121.5 0.1 1.7 120.15 0.1 1.7 217.7 0.0 2.2 218.78 0.1 2.3 Jun 10 (1) 109.9 -0.1 1.3 109.57 -0.1 1.2 121.5 0.0 1.6 120.15 0.0 1.5 217.9 0.1 1.6 219.07 0.1 1.6 Jul 10 (1) 109.4 -0.5 1.5 109.00 -0.5 1.4 121.1 -0.3 1.7 119.77 -0.3 1.7 218.6 0.3 1.8 219.23 0.1 1.8 Aug 10 (1) 109.6 0.2 1.4 109.26 0.2 1.3 121.6 0.4 1.6 120.26 0.4 1.6 219.2 0.3 1.7 219.43 0.1 1.7 Sep 10 (1) 109.9 0.2 1.6 109.54 0.3 1.5 121.5 -0.1 1.8 120.13 -0.1 1.7 219.7 0.2 1.7 219.67 0.1 1.7 Oct 10 (1) 110.2 0.3 1.7 109.83 0.3 1.5 121.5 0.0 1.7 120.19 0.1 1.7 220.1 0.2 1.7 219.97 0.1 1.8 Nov 10 (1) 110.4 0.1 1.7 109.97 0.1 1.6 121.6 0.1 1.6 120.25 0.1 1.6 220.4 0.1 1.6 219.81 -0.1 1.6 Dec 10 (1) 110.8 0.4 1.7 110.37 0.4 1.6 121.8 0.2 1.5 120.44 0.2 1.6 220.5 0.1 1.5 219.17 -0.3 1.5 Updated Next Release Apr 30 Apr HICP (May 18) Apr 30 Apr CPI (May 12) May 06 Apr CPI (May 19) Source: BNP Paribas, (1) Forecasts Chart 4: Eurozone HICP (% y/y) Chart 5: US Shelter Prices Drive Core CPI Lower Source: Reuters EcoWin Pro Core inflation is forecast to continue grinding lower, as excess capacity and the ongoing structural adjustment in a number of economies limit firms’ pricing power. Luigi Speranza/Eoin O’Callaghan 7 May 2010 Market Mover 49 www.GlobalMarkets.bnpparibas.com
Page 1 and 2: Market Economics | Interest Rate St
Page 3 and 4: UK: all eyes on the election US: re
Page 5 and 6: Event response The ECB is being ove
Page 7 and 8: Eurozone Periphery: Compare and Con
Page 9 and 10: over 20% in Q1) and, last but not l
Page 11 and 12: Market Stress Charts • Signs of s
Page 13 and 14: Chart 7: Greek Bank CDS* 900 Greece
Page 15 and 16: • The plan also contains a number
Page 17 and 18: Germany: Downs and Ups • The impa
Page 19 and 20: Retail sales data from month to mon
Page 21 and 22: On inflation, the statement was als
Page 23 and 24: quarterly average of 2.7% in the fi
Page 25 and 26: US Credit: Still the Recovery’s B
Page 27 and 28: Japan: Rising Chance of Sales Tax H
Page 29 and 30: BNP Paribas Surprise Indicator •
Page 31 and 32: UK headline After surprising to the
Page 33 and 34: US: Supply Could Affect Swap Spread
Page 35 and 36: steep curve is typically associated
Page 37 and 38: decline. We continue to maintain ou
Page 39 and 40: Chart 12: 90-119 Day Dlq for FRE 90
Page 41 and 42: the gamma sector for some time now.
Page 43 and 44: EUR: Limited Nervousness at ECB Ten
Page 45 and 46: with the big redemption (EUR 17.7bn
Page 47: measures are not promptly taken to
Page 51 and 52: Table 3: BNP Paribas' Inflation For
Page 53 and 54: Table 1: BNP Paribas Carry Analysis
Page 55 and 56: What’s the call? It is relatively
Page 57 and 58: Update on FIN SEN and FIN SUB 5/10y
Page 59 and 60: Germany 10y: Within MT falling wedg
Page 61 and 62: Judging Currencies by Liquidity •
Page 63 and 64: type of regulation would reduce mon
Page 65 and 66: Euro Dives • The euro is collapsi
Page 67 and 68: Currency Spot Trade Recommendations
Page 69 and 70: Economic Calendar: 7 - 14 May (cont
Page 71 and 72: Key Data Preview Chart 1: US Payrol
Page 73 and 74: Key Data Preview Chart 5: UK Manufa
Page 75 and 76: Key Data Preview Chart 9: French GD
Page 77 and 78: Key Data Preview Chart 13: US Indus
Page 79 and 80: Treasury and SAS Issuance Calendar
Page 81 and 82: Central Bank Watch Interest Rate EU
Page 83 and 84: FX Forecasts* USD Bloc Q2 '10 Q3 '1
Page 85: RESEARCH DISCLAIMERS: IMPORTANT DIS

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