World Inflation – A Bright Future Ahead
Do you remember how big a problem inflation used to be until a few months ago? Inflation was continuously overshooting in a global scale and some economies such as the Eurozone and particularly Japan were facing deflation. In fact, Japan has been facing deflation for about two decades now, since the Asian crises in late "90s so that´s completely another issue.
Recently though, inflation has been picking up in all large economies, even Japan. Europe has moved a long way away from the deflation risk while the US and the UK are targeting 2% inflation next year. Today´s inflation reports from the UK and especially from China are another step in the right direction.
The inflation survey from the BOE (Bank of England) which was just released showed that the general British public expected prices to increase by 2.8% next year from 2.2% previously. Inflation expectations for the next 5 years were higher too.
The most important release though was the Chinese inflation report. The producer price index (Chinese PPI) used to be negative during the summer and September, so a 3.3% increase in input prices is a massive jump. Besides that, the Chinese consumer inflation index (Chinese CPI) moved above the 2% target for the first time in a long time.
These two reports add to the wider global inflation picture which is showing some good progress. Some financial analysts call this unsustainable inflation since it is artificially stimulated by loose monetary policy from big central banks and by oil prices which have increased due to OPEC deal.
It is true to some extent, but that´s how the engine of the global economy starts running. It needed a jump start so it got that from OPEC and central banks. The governments could have done much more with fiscal policy, but the wheels of the world economy have started rolling and the steam is getting thicker. Investor sentiment has improved considerably as well and unemployment is constantly declining, so all we need now is higher wages.
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