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Two devils in the US inflation detail

US inflation has been surprisingly low for a few months after a peak in May 2014. According to the latest data released in September, core CPI (i.e. excluding food & energy) stands at just 1.7% with much of this weakness caused by declining goods prices. According to the US Bureau of Labor Statistics (BLS) the average price of imports, excluding fuel, has not increased in six months. A stronger…

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Bad loans in banks to be regulated by ECB total €879 billion

Happy Halloween. It’s time for some scary charts.

Halloween is around the corner and that can only mean one thing… scary chart time. Every year around this time, we highlight economic variables and statistics that could give central bankers nightmares. If stuff like non-performing loans, bad forecasts and big numbers scare you then it is probably time to turn off your computer screen and forget you ever saw this blog. The following is not for …

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“Global greying” could mean getting used to ultra-low bond yields

The developed world is going through an unprecedented demographic change – “global greying”. This change is having a massive impact on asset prices and resources as populations around the world get older and live longer. It is also having an impact on the effectiveness of monetary policy. We would typically expect older populations to be less sensitive to interest rate changes as they are large…

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Exceptional measures: Eurozone yields to stay low for quite some time

Richard recently wrote about the exceptional times in bond markets. Despite bond yields at multi-century lows and central banks across the developed world undertaking massive balance sheet expansions the global recovery remains uneven.

Whilst the macro data in the US and UK continues to point to a decent if unspectacular recovery, the same cannot be said for the Eurozone. Indeed finding data to…

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Exceptional times

Interest rates – both short and long term – are at record lows in Europe. The driving force behind this is the belief that both employment and inflation will be lower for longer. This is something that concerns the ECB and Drahgi’s Jackson Hole speech implies further easing ahead. These appear to be exceptional times.

The story of how we got here is pretty simple: a global banking collapse in 2…

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Race to the Bottom: Eurozone Inflation Rates

In principle, the European Central Bank (ECB) is well in line with its price stability objective, which it defines as a “year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2%”. Nonetheless, July inflation numbers released last week bring the currency union as a whole dangerously close to deflationary territory. The aggregate HICP annual rate of ch…

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Falling soft commodity prices are a piece of cake

Higher agricultural commodity prices at the start of the year raised concerns about the impact these could have on retail food prices, should the trend prove persistent. Fortunately, the price of soft commodities (coffee, sugar, wheat etc) appears to have decoupled from that of hard commodities (gold, silver, platinum etc) in recent months. Indeed, data from the last seven quarters indicate tha…

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The reliability of market and consumer inflation expectations

After yesterday’s poor U.S. GDP number and despite Mark Carney’s seemingly dovish testimony before the Treasury Select Committee, the Bank of England is increasingly looking like it will be the first of the major central banks to hike rates. At this stage, the BoE can retain its dovish stance because inflation is not an issue. However, in an environment of falling unemployment, early signs of a…

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Is Europe (still) turning Japanese? A lesson from the 90’s

Seven years since the start of the financial crisis and it’s ever harder to dismiss the notion that Europe is turning Japanese.

Now this is far from a new comparison, and the suggestions made by many since 2008 that the developed world was on course to repeat Japan’s experience now appear wide of the mark (we’ve discussed our own view of the topic previously here and here). The substantial pick…

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Deflation spreading in Europe

The ECB has already demonstrated an unusually, and perhaps worryingly, high tolerance of low inflation readings, with no additional action having been taken despite Eurozone HICP at 0.5% year-on-year as inflation continues to fall in many countries.


Why might this be? One reason might be that while it is very concerned about deflation, at this point in time the ECB does not have a clear idea …

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