Originally published at: The week in charts: Global inflation in the spotlight – InvestEngine Insights
In a week dominated by more all-time highs in the US equity markets, we examine fresh inflation data from some developed markets. This week also brought another interest rate cut by the European Central Bank.
United Kingdom
In September, the UK’s inflation reading fell more than expected. A 1.7% increase is a three-year low, prompting markets to increase bets on further interest rate cuts from the Bank of England this year.
The data points released on Wednesday show that inflation has reverted under the Bank of England’s 2% target for the first time since April 2021. The decrease was mainly driven by lower airfare and petrol prices, which adjusted for seasonality is normal for this time of year.
Such moves have led the market to start to firmly believe another interest rate cut of 25bps is coming in November’s meeting and lifts the chance of a follow-up cut in December.
United States
The US’ September inflation CPI report rose by 2.4%, slightly higher than expected but cooled from a 2.5% rise in August, marking continued progress toward the Federal Reserve’s 2% target.
Broad declines in fuel and energy prices contributed to a lower headline annualised inflation reading relative to August, while shelter and food prices being responsible for most of the monthly increase.
The small upside in core CPI shows us that inflation pressures have not fully dissipated from the pandemic era, which should keep the Fed on a gradual pace of rate cuts going forward.
At present and despite core CPI coming in higher than expected, the next interest rate cut should be coming at November’s meeting.
Eurozone
Over in Europe core inflation came in at 1.70% down from 2.20% putting it below the European Central Bank’s 2% for the first time since 2021. Looking at each individual component for September it is clear to see that underlying cost pressures continue to ease.
This week has also brought the third interest rate cut this year by the ECB, putting the borrowing cost at 3.25% amid signs that growth and inflation in the Eurozone are weakening.
Whilst the cut was anticipated, the ECB mentioned it was based on an “updated assessment of the inflation outlook”.
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