Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Chart of the Week: Inflation in the G7 countries
Christopher Dembik
Head of Macroeconomic Research
Summary: Developed economies have long struggled with falling inflation, but now, countries like China, Indonesia and Brazil are being hit by this unwelcome trend.
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Lately, there has been talk about the reflation trade. Taking a look at the chart below, it seems obvious that the primary fundamental risk is not inflation but rather "lowflation".
Average inflation in the G7 countries was at 1.2% YoY in February, close to its lowest point since summer 2017. Inflationary pressures are also absent in China where PPI is close to 0%, which means the country is about to export deflation again as it did in 2015.
Even in BRICs+Indonesia, where inflation historically tends to be much higher than in developed market countries, CPI is quite low compared to previous years, at 3.9% YoY on average in February. Unless commodity prices soar, which is not the case so far considering the sluggish evolution of the Bloomberg Commodity Index, the year 2019 should still be marked by very low global inflation, which will complicate central banks' tasks. In a heavily indebted world, we desperately need inflation!
Lately, there has been talk about the reflation trade. Taking a look at the chart below, it seems obvious that the primary fundamental risk is not inflation but rather "lowflation".
Average inflation in the G7 countries was at 1.2% YoY in February, close to its lowest point since summer 2017. Inflationary pressures are also absent in China where PPI is close to 0%, which means the country is about to export deflation again as it did in 2015.
Even in BRICs+Indonesia, where inflation historically tends to be much higher than in developed market countries, CPI is quite low compared to previous years, at 3.9% YoY on average in February. Unless commodity prices soar, which is not the case so far considering the sluggish evolution of the Bloomberg Commodity Index, the year 2019 should still be marked by very low global inflation, which will complicate central banks' tasks. In a heavily indebted world, we desperately need inflation!
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