Global disinflationary forces have continued to take hold across all economies, with goods inflation and service sector prices implying lower overall price pressures into the first half of 2025. The impact of Chinese deflation should also be kept to the fore. Below potential growth rates should also lead to even lower inflation in coming quarters.
In the US, the upside earlier this year was largely driven by energy and rental prices. The impact of energy has dissipated and there are clear indications that rental inflation should also begin to ease materially in coming quarters. A broad range of indicators are pointing to inflation reverting to target in the coming months. The key Personal Consumption Expenditure (PCE) price index inflation data should also ease in coming quarters. In Canada, all three official measures of consumer pricing are firmly within the 1-3% target range, with headline Consumer Price Index (CPI) at 2%, the median index at 2.3%, and the trim index at 2.4%.
In the UK, inflation has steadied just above the target of 2% and will rise temporarily, largely due to the energy price cap. UK goods prices remains in deflationary territory, whereas service inflation remains stickier but is also easing. Eurozone inflation is set to ease in the next quarter as well, as shown by September readings that have come in well below expectations pointing to target inflation being met.
The key upside risks that we’re monitoring centre around the impact of the geopolitical crises and a re-emergence of broader labour market tightness.
To find more about the latest house views from London & Capital’s Investment Desk, read the full AndPapers Q4 2024 here.
