Global inflation moves up further, but not by much – ABN AMRO
Han de Jong, chief economist at ABN AMRO, points out that the inflation has risen in the course of the year in the main economies as higher oil prices have pushed headline inflation higher.
“Currency weakness has added to inflation pressure in a range of emerging economies. Core inflation has also accelerated in the US this year, but has stayed stable in the eurozone. Despite somewhat higher core inflation in the US, it remains remarkable how modest underlying inflation still is given the tight labour market.”
“This means either that US inflation will move up materially at some point, possibly in the not-too distant future, or that structural changes in the economy are keeping wage increases and inflation in check. We favour the latter view, although a further modest rise in underlying inflation is likely in the US. This is a key call. Should US inflation move up more than expected, then the Fed will have no alternative but continue tightening or even accelerate its tightening. That would have a negative effect on other economies, in particular emerging economies, and global financial markets.”
“Core inflation has remained stable around 1% in the eurozone for three years. While unemployment has fallen, we think enough slack remains to prevent a serious acceleration of wage increases and of inflation. The lower overall growth rate of the eurozone economy will do little to change this. Increased flexibility of labour markets appears to have weakened the negotiating position of labour and thus changed the relationship between the tightness of the labour market and wage increases.”