GLOBAL inflation appears tamer than many had thought it would be by now, still held back by a modest outlook for economic growth, meaning central banks look likely to leave rates lower for longer — or even ease policy further.
With a few exceptions such as Brazil, many major economies are still generating low or no consumer price inflation but instead higher asset prices, particularly stocks, and in many countries, a renewed pickup in house price inflation.
For those watching the world economy, China, not Greece, has for a while remained the No. 1 concern. The slowing world’s second-largest economy is generating just 1.4 percent inflation.
Jeremy Lawson, chief economist at Standard Life Investments, writes: “The long-term glide path is still down and most of the risks remain to the downside.
“Slow growth and moderating inflation explains why many emerging economies have been loosening monetary policy in recent months ... (but) there is a danger in taking things too far.”
The inflation outlook for the United States also remains remarkably tame, particularly given how quickly the unemployment rate has fallen but still with no convincing evidence that has translated into significantly higher wage deals.
While some large investment banks remain upbeat about prospects for US growth in coming months, forecasting a much stronger second half for the world’s largest economy has become boilerplate since the financial crisis began to ease. Federal Reserve policy-makers were clear in minutes of a June policy meeting that they had a close eye on economic growth abroad, particularly in China and other emerging markets.
Traders and investors in financial markets, who had pushed to September from June expectations for the first US interest rate rise in nearly a decade, now talk about December or even 2016.
Testimony from Fed chief Janet Yellen to Congress on Wednesday and Thursday could provide more clarity on how close the Federal Open Market Committee is to raising rates from a record low of 0-0.25 percent, but few expect strong signals.
“We still believe the FOMC majority is anxious to lift policy off the zero bound when the opportunity arises, preferably before year end,” wrote economists at Credit Suisse.