Globally June inflation probe shows no signs of life - RBS

Research Team at RBS, suggests notes that globally core inflation is falling again in the large economies and they expect this to continue.

Key Quotes

“Core inflation has been stuck at about 0.8%-0.9% since late 2013. June’s detailed report showed no new signs of life.

We expect core inflation to edge down to about 0.7% y/y (from the current 0.9% y/y) by mid-2017. Especially following the UK leave vote and the associated effect on Eurozone growth and inflation expectations, we think it is increasingly unlikely that inflation will turn around its gradual slide lower soon.

Services inflation has very low cost push (low unit labour costs, low finance costs), and supply side gains due to reorganisation. Weak corporate investment and consumer balance sheet repair are both short-term drags on demand that have a long way to run.

Industrial goods price inflation is also likely to stay depressed over the coming months, as weak non-energy commodity prices combine with the recent appreciation in the trade-weighted euro.

Headline inflation should pick up temporarily in the coming months as the y/y comparisons for energy prices move to a low base. These base effects should be most pronounced in August/September, and later in January (we expect headline CPI at 0.5% in September and 1.1% in January). Energy base effects are likely to drive headline CPI in the months ahead, while core components remain subdued. Food prices represent a small contribution, and we expect a marginal deceleration in food CPI, based on the weakness of agricultural commodity prices.”