Market Outlook - BNP PARIBAS - Investment Services India

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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
Table 1: BNP Paribas' Inflation ForecastsEurozoneFranceUSHeadline HICPEx-tobacco HICPHeadline CPIEx-tobacco CPICPI Urban SA CPI Urban NSAIndex % 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/y2010 109.8 - 1.6 109.5 - 1.5 121.1 - 1.5 119.8 - 1.5 218.1 - 1.6 218.1 - 1.62011 (1) 112.8 - 2.7 112.4 - 2.6 123.6 - 2.1 122.1 - 2.0 225.0 - 3.2 225.0 - 3.22012 (1) 114.8 - 1.8 114.3 - 1.7 125.7 - 1.6 124.0 - 1.6 229.0 - 1.8 229.0 - 1.8Q1 2011 111.3 - 2.5 110.9 - 2.4 122.5 - 1.8 121.0 - 1.7 222.3 - 2.2 221.7 - 2.1Q2 2011 113.1 - 2.8 112.8 - 2.7 123.9 - 2.1 122.4 - 2.0 224.5 - 3.3 225.5 - 3.4Q3 2011 (1) 112.8 - 2.7 112.4 - 2.6 123.8 - 2.1 122.3 - 2.1 226.2 - 3.8 226.5 - 3.8Q4 2011 (1) 113.9 - 2.8 113.5 - 2.7 124.3 - 2.2 122.8 - 2.1 226.9 - 3.4 226.4 - 3.4Q1 2012 (1) 113.8 - 2.3 113.3 - 2.2 124.6 - 1.7 123.0 - 1.6 227.5 - 2.3 226.9 - 2.3Q2 2012 (1) 115.1 - 1.7 114.6 - 1.6 125.5 - 1.3 123.9 - 1.3 228.5 - 1.8 229.5 - 1.8Q3 2012 (1) 114.7 - 1.7 114.2 - 1.6 126.0 - 1.8 124.3 - 1.6 229.6 - 1.5 229.8 - 1.5Q4 2012 (1) 115.7 - 1.5 115.1 - 1.4 126.5 - 1.8 124.9 - 1.7 230.6 - 1.6 230.0 - 1.6Jan 11 110.5 -0.7 2.3 110.11 -0.7 2.2 121.8 -0.2 1.8 120.32 -0.2 1.7 221.1 0.4 1.7 220.22 0.5 1.6Feb 11 111.0 0.4 2.4 110.58 0.4 2.4 122.4 0.5 1.7 120.90 0.5 1.6 222.3 0.5 2.2 221.31 0.5 2.1Mar 11 112.5 1.4 2.7 112.11 1.4 2.6 123.4 0.8 2.0 121.90 0.8 1.9 223.5 0.5 2.7 223.47 1.0 2.7Apr 11 113.1 0.6 2.8 112.75 0.6 2.8 123.8 0.3 2.1 122.32 0.3 2.0 224.4 0.4 3.1 224.91 0.6 3.2May 11 113.1 0.0 2.7 112.75 0.0 2.7 123.9 0.1 2.0 122.40 0.1 2.0 224.8 0.2 3.4 225.96 0.5 3.6Jun 11 113.1 0.0 2.7 112.75 0.0 2.7 124.0 0.1 2.1 122.49 0.1 2.1 224.3 -0.2 3.4 225.72 -0.1 3.6Jul 11 112.4 -0.6 2.5 112.03 -0.6 2.5 123.4 -0.4 1.9 121.94 -0.4 1.9 225.4 0.5 3.6 225.92 0.1 3.6Aug 11 112.6 0.2 2.5 112.23 0.2 2.5 124.0 0.5 2.2 122.59 0.5 2.2 226.3 0.4 3.8 226.55 0.3 3.8Sep 11 113.5 0.8 3.0 113.08 0.8 2.9 124.0 -0.1 2.2 122.49 -0.1 2.2 227.0 0.3 3.9 226.89 0.2 3.9Oct 11 (1) 113.7 0.2 2.9 113.34 0.2 2.9 124.2 0.2 2.3 122.64 0.1 2.2 226.7 -0.1 3.5 226.42 -0.2 3.5Nov 11 (1) 113.8 0.1 2.9 113.38 0.0 2.8 124.3 0.0 2.3 122.68 0.0 2.2 227.0 0.1 3.5 226.52 0.0 3.5Dec 11 (1) 114.2 0.3 2.6 113.73 0.3 2.5 124.6 0.2 2.0 122.97 0.2 2.0 227.2 0.1 3.2 226.13 -0.2 3.2Jan 12 (1) 113.1 -0.9 2.4 112.65 -0.9 2.3 124.3 -0.2 2.0 122.67 -0.2 1.9 227.2 0.0 2.8 226.35 0.1 2.8Feb 12 (1) 113.5 0.4 2.3 113.07 0.4 2.2 124.5 0.2 1.8 122.91 0.2 1.7 227.4 0.1 2.3 226.45 0.0 2.3Mar 12 (1) 114.8 1.1 2.0 114.30 1.1 2.0 125.1 0.5 1.4 123.50 0.5 1.3 227.8 0.2 1.9 227.79 0.6 1.9Apr 12 (1) 114.9 0.1 1.6 114.41 0.1 1.5 125.3 0.2 1.3 123.74 0.2 1.2 228.1 0.1 1.6 228.60 0.4 1.6May 12 (1) 115.1 0.2 1.8 114.66 0.2 1.7 125.6 0.2 1.4 123.98 0.2 1.3 228.5 0.2 1.7 229.70 0.5 1.7Jun 12 (1) 115.2 0.0 1.8 114.68 0.0 1.7 125.7 0.1 1.4 124.10 0.1 1.3 228.9 0.1 2.0 230.31 0.3 2.0UpdatedNextReleaseOct 14Oct Flash HICP (Oct 31)Oct 14Oct CPI (Nov 10)Oct 19Oct CPI (Nov 16)Source: BNP Paribas, (1) ForecastsChart 4: Eurozone HICP (% y/y)654321Chart 5: US CPICPI % y/y - Contribution to GrowthEnergyFood0-1Core (ex-food & energy)-2Source: Reuters EcoWin ProSeptember’s sharp rebound in inflation was mainly due tomethodological factors. The contribution of energy to headlineinflation was 1.3pp in September. However, this should declinesharply from October onwards.-3Jan May Sep Jan May Sep Jan May Sep Jan May08 09 10 11Source: Reuters EcoWin ProThe core CPI gained only 0.05% m/m in September thanks to pricefalls on car and apparel. However, core inflation has risen to2.0% y/y, and should continue to rise until the year-end, thuscontributing more to headline inflation. However, the expecteddecline in the energy contribution should outweigh thisdevelopment.Luigi Speranza/Gizem Kara/Dominique Barbet 20 October 2011Market Mover41www.GlobalMarkets.bnpparibas.com
Page 1 and 2: Market Economics | Interest Rate St
Page 8 and 9: Germany: On the Hook• German data
Page 10 and 11: UK: Top Of The Hill• The Septembe
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Page 16 and 17: Japan: Real Reason for ‘Turning J
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Page 54 and 55: Economic Calendar: 21 - 28 October
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Page 60 and 61: Key Data Preview12.510.07.55.02.50.
Page 62 and 63: Key Data PreviewChart 13: Japanese
Page 64 and 65: Economic Calendar: 31 Oct - 25 Nov3
Page 68 and 69: Economic ForecastsGDPYear 20112012(
Page 70 and 71: Market CoverageMarket EconomicsPaul

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