March 31, 2021

EA: HICP rises without IT in Mar-21

  • Flash HICP inflation rebounded by 40bps to 1.3% in Mar-21. That outcome was 14bps less than we expected, mostly caused by Italy and France to a lesser extent, while Spain provided a partial positive offset. Our forecast is now 0.1pp lower for the year ahead.

March 24, 2021
2021-03-24 inf_head.png

UK: disinflation during lockdown disaster

  • UK inflation disappointed in Feb-21 as it slowed to 0.4% y-o-y on the CPI and held at 1.4% on the RPI. Garment prices were the weakest on record for a February CPI. Games also weighed on the CPI, with some payback likely, while the RPI was more hit by insurance.
  • Locked down clothing shops have struggled to shift stock, smothering a strange surge from 2020 at the start of 2021. Our forecasts are lowered by the news, especially on the RPI. Hawkish labour market news should at least offsets this for the BoE, in our view.

March 17, 2021
2021-03-17 global_head.png

De-globalisation’s macro impacts

  • Globalisation in recent decades both lowered and flattened the Phillips Curve, making domestic inflation more dependent on the global rather than the domestic output gap.
  • We believe that the drive for supply chain security is pushing this process into reverse and that the post-pandemic world will have a higher and steeper Phillips Curve.
  • Inflation will be higher for a given set of unemployment data, especially if there’s a global schism. Policymakers will respond more to output and risk overstimulating.