Equities | Monetary Policy & Inflation | Politics & Geopolitics | US
Charts of the Week: Persistent Inflation Problems for Central Banks
- By Matthew Tibble
- 2 min read
Summary
- The Fed faces inconsistent inflation and unemployment in the US.
- Meanwhile, the ECB looks unlikely to shift dovish given core inflation momentum.
- In South Africa, the SARB remains focused on inflation, not growth.
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Summary
- The Fed faces inconsistent inflation and unemployment in the US.
- Meanwhile, the ECB looks unlikely to shift dovish given core inflation momentum.
- In South Africa, the SARB remains focused on inflation, not growth.
Inflation and Unemployment Inconsistencies in the US
Currently, slowing inflation and very low unemployment are inconsistent, and either inflation or unemployment will eventually rise (Chart 1). As Dominique argues, inflation seems more likely to rise than unemployment, as growth risks are skewed to the upside and China’s reopening is likely to lift global energy prices and rekindle US inflation.
ECB Dovishness Unlikely Given Inflation Outlook
The case for ECB dovishness could build if inflation starts to slip. However, momentum is yet to wane (Chart 3). And as Henry argues, the consensus within the voting members should begin to turn towards the deterioration of the medium-term outlook. As such, the case for a terminal rate above 3.5% seems significantly stronger than one below it, meaning the market is underpricing (Chart 2).
South Africa’s SARB Is Still Fixated on Inflation
December inflation was a mixed bag for the SARB. Headline is easing. But core inflation at 5.1% YoY was unchanged from November and down only slightly from the October high of 5.2% (Chart 3).
As Caroline argues, sticky core inflation will leave the SARB wary of continued second-round effects even though food and transport remain the largest contributors to YoY inflation (at 2.1pp and 2.0pp respectively in December). That inflation expectations also rose in the Q4 survey adds further concern (Chart 4).