After a bumpy ride in the first half of 2024, with US inflation surprising marginally on the upside, the downward trend has resumed. The underlying disinflationary forces remain intact, with goods inflation and service sector prices implying lower overall price pressures in the second half of the year. The upside earlier this year was largely driven by energy and rental prices in the US, but there are clear indications that the latter should begin to ease materially in the coming quarters. The key PCE inflation data (personal consumption expenditure price index) should also ease.
In Canada, consumer prices moved within the 1-3% target range, with the median index at 2.6% and the trim index at 2.9%. Meanwhile, in the UK, headline inflation hit the target of 2% in May, with goods prices in deflationary territory, and service inflation, although stickier, has also eased. Below-potential growth rates should lead to even lower inflation in the coming quarters.
And Eurozone inflation is also set to ease in the next quarter for similar reasons. There’s already a big disparity, with Italian Consumer Price Index (CPI) at 0.8% year-over-year and Spain at 3.8%, whereas Germany is at 2.8%.
The key upside risks include the impact of 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 Q3 2024 here.
