It is interesting that despite rising concerns about the outlook for global economic growth in recent months, there has been no noticeable decline in core inflation (CPI less food and energy) across the developed world (see chart 1). Indeed, core inflation has actually been rising over the last 12 months in the US, the UK and Japan, though there has been a slight decline in Europe. The simple average for the four series is 1.4% as of March which although below what should be considered the target for developed country central banks, is not cause for serious concern. On the contrary, it means that monetary policy will remain loose which should be supportive of risky assets (bear markets tend to start when central banks are trying to bring inflation down).
As for emerging countries, there are signs of improvement (see chart.2). China’s inflation rate, which has been too low, has been rising, while Brazil’s and Russia’s, which have been too high, have been falling. India’s has been nudging up to around 5% over the last couple of years. This might be considered slightly on the high side, though is a vast improvement on the 10% rates seen in 2012 and 2013.
Published in Investment Letter, May 2016
The views expressed in this communication are those of Peter Elston at the time of writing and are subject to change without notice. They do not constitute investment advice and whilst all reasonable efforts have been used to ensure the accuracy of the information contained in this communication, the reliability, completeness or accuracy of the content cannot be guaranteed. This communication provides information for professional use only and should not be relied upon by retail investors as the sole basis for investment.