Global inflation is going to pick up due to the recent rise in commodity prices . We expect this to reduce the deflation scare further, thereby supporting the market pricing of inflation.
In the euro area we expect inflation to reach 1.5% early next year, which will be the highest rate since mid-2013 . However, the higher inflation is going to be temporary as it is set to be driven by energy prices, whereas core inflation is likely to remain subdued.
In the UK, both headline and core inflation are likely to rise considerably, especially due to the significant depreciation of the GBP . The weaker GBP implies higher import, food and energy prices.
In the US, we expect CPI headline inflation to stabilise around 2% next year due to the higher energy prices . CPI core inflation is not expected to move significantly higher as wage growth remains subdued.
Chinese deflationary pressures are also easing . We look for a further increase in PPI inflation in coming months as it is being driven mainly by industrial commodity prices and we expect these to continue to trend higher on the back of the recovery in Chinese construction.
In Japan inflation has always been far away from Bank of Japan's target . BoJ's new target should not change expectations much as it is not spelled out how to achieve higher inflation.
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