Market Outlook - BNP PARIBAS - Investment Services India

Global Inflation WatchInflation seen fairly stable in OctoberThe final reading of eurozone inflation forSeptember confirmed the flash estimate, at 3% y/yup from 2.5% in August. The main contributor tohigher inflation in the eurozone was Italy, where theharmonised inflation rate jumped 1.3pp to 3.6% y/y.This was largely due to the new technical processintroduced in January, which changed theseasonality of Italian harmonised inflation. The VAThike also played a role, but its effect was muchsmaller as the domestic inflation rate – up a muchsmaller 0.2pp – showed. But this is already history.Attention will focus on the October CPIs, with therelease of preliminary estimates on Thursday 27October in Germany and Belgium and, on the nextday, in Spain.We do not expect German inflation to change inOctober. We forecast the monthly gain at 0.1% andannual inflation rates stable at 2.6% for the CPI and2.9% for the HICP.Spanish preliminary HICP inflation is forecast to fallslightly in October to 2.9% y/y from September’s3.0%. This is consistent with our global economicinflation outlook, which is that inflation should start toease in developed markets in October or November,because of a less adverse base effect on energy anddue to the global economic slowdown. Exceptionsremain possible, especially where tax hikes hitconsumers.Belgian inflation is forecast stable at 3.6% y/y forOctober. However, Belgian inflation is highlysensitive to energy prices and much more volatilethan the eurozone average, so it is not a good guideto inflation in the entire monetary union.The US CPI was in line with forecasts, up 0.3% m/min September, which pushed the annual inflation rateup again to 3.9% y/y. This should be the peak of thecycle: we forecast the inflation rate will decline by asmuch as 0.4pp in October.On Friday we forecast Japanese inflation as stable:no CPI change on the month of September and thesame 0.2% y/y inflation rate as in August. However,the Tokyo price index for October should print asharp decline, down 0.5% m/m lowering the inflationrate by 0.3pp to -0.4% y/y.Chart 1: HICP Main Eurozone Countries (% y/y)6543210-1GermanySpainEurozoneItalyFrance-2Jan May Sep Jan May Sep Jan May Sep Jan May Sep08 09 10 11Source: Reuters EcoWin Pro653210-1-2Chart 2: Belgian HICP Inflation (% y/y)4 HICP EurozoneHICP Belgium02 03 04 05 06 07 08 09 10 11Source: Reuters EcoWin ProChart 3: Inflation Rates Compared in Japan2.521.5% y/yNationwide CPI10.50-0.5-1-1.5TokyoCPI-2GDP Deflator-2.5-302 03 04 05 06 07 08 09 10 11Source: Reuters EcoWin ProLuigi Speranza/Gizem Kara/Dominique Barbet 20 October 2011Market Mover40www.GlobalMarkets.bnpparibas.com