Pandemic inflation has topped and is about to crash. But Ukraine war inflation is still flushing through the system.
Global headline inflation is still increasing, at 6.3%Y in May vs 6.1%Y in April. Food and energy prices are driving the move. As we show, food and energy are key drivers of long-run inflation expectations in the US, and should keep those measures elevated this year.
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Inflation is still high, and DM central banks are closely looking at long-run inflation expectations
- Global inflation continues to rise, driven by food and energy prices
- Many DM central banks are citing a risk of de-anchoring of inflation expectations. Part of the Fed’s choice to hike 75bps instead of 50bps was driven by a rise in inflation expectations.
- We analyze the U-Mich 5-10YR inflation expectations measure and show that it is correlated with recent prints of food at home and energy services CPI.
DM inflation is broadly based, but US and UK have started to show signs of deceleration in core goods
- In the US, headline inflation surprised to the upside in May (8.6%Y in May) boosted by food and energy, but most surprising was the pick-up in core goods prices after softening over previous months.
- In the UK, food was the main driver of the recent uptick in headline CPI (9.1%Y in May vs 9.0%Y in April). We think core CPI peaked in April and we expect softer prints ahead on the back of lower core goods CPI rates.
- Headline inflation keeps breaking records in the Euro Area (8.6%Y in June) with energy and, to a lesser extent, food as main drivers. We still see annual rates peaking in September.
Inflation in Asia remains contained
- In China, CPI rose 40bp in June to 2.5%Y led by stronger food inflation. Core firmed up slightly to 1%Y (vs 0.9% in May), driven by clothing and tourism & entertainment amid broader economic reopening.
- In India,headline CPI fell to 7%Y in May (vs 7.8% in April) due to softer core inflation.Food,a key CPI component, does not show clear signs of deceleration yet.
- Inflation accelerated in Korea (6% in June vs 5.4%Y in May) and Indonesia (4.4% in June vs 3.6%Y in May), driven by food and transport prices.
Accelerating inflation in CEEMEA, but signs of deceleration in Russia
- In Russia,headline CPI surprised to the downside (17.1%Y in May vs 17.8%Y in April) driven by a stronger RUB and lower domestic demand.
- In Turkey, renewed FX weakness and a recent rise in energy prices suggest= continuing pressures in the coming months. Inflation remains high, 78.6%Y in June.
- Poland, Czech Republic,and Hungary (CE3) show rising inflation,and South Africa’s CPI broke SARB’s 3-6% target band in May (6.5%Y). Non-core components are the main factors explaining the acceleration.
Food and core inflation push prices in Latam, but pressures might be easingin Brazil
- In Brazil, the diffusion index decreased for the first time in 2022, showin signs of easing inflationary pressures. Recently approved fuel tax reductions will likely yield short-term relief. Headline CPI is still high, 11.9%Y in May.
- Inflation is still elevated in Mexico (7.7%Y in May) and is broadly based.
- Energy remains subdued due to the current subsidy policy, but food commodity prices are pushing food and core CPI despite price controls.