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Inflation data may test nervy markets again
February 10, 2018
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DUBLIN: A surprise surge in US wage growth has rocked global stock and bond markets in the past week, and inflation figures from three of the world’s biggest economies could dictate whether investors are in for another rollercoaster ride in the coming week.

Stocks have had their worst week since the height of the eurozone crisis in 2011 after jobs data a week ago posed the question markets are now grappling with: Is long-absent inflation returning to the strengthening world economy? Some hints of what the answer to that is - and what it may mean for the era of low interest rates - could emerge with the latest consumer price snapshots from Britain on Tuesday and Germany and the United States a day later.

German inflation, a barometer for how prices are faring across the eurozone, should be of least concern, assuming the final figures for January match weak provisional data that showed annual consumer price inflation slowing to 1.4 per cent.

Although a landmark wage deal and a purse-string loosening coalition agreement will likely add to inflation over time, the current moderate price pressures — even in booming Germany — shows the eurozone outlook is quite different to the United States.

The number of Americans filing for unemployment fell to a near 45-year low last week, but the jobless rate in the eurozone is still at almost 9 per cent - and the broader slack in the jobs market, including part-time and temporary workers, could be twice as high, economists say.

“Although the labour markets in some countries such as Germany seem to be running dry, which will be reflected in stronger wage growth, the unemployment rate in the other euro countries is, on average, still very high,” said Commerzbank economist Ralph Solveen.

“In the euro area as a whole, wages are therefore unlikely to rise particularly rapidly. As a consequence, core inflation ought to remain around 1 per cent, at least this year, providing the ECB with the arguments to maintain its expansionary stance.” Spanish Inflation data on Thursday will broaden the picture out to those countries where unemployment is at its highest, while fourth-quarter growth data for the bloc as a whole - and individually for the likes of Germany, Italy and the Netherlands - are set to show an ever broadening recovery.

In Britain, where consumers have been facing price pressures for far longer after the 2016 Brexit vote pushed down the value of the pound, the Bank of England said on Thursday that it sees a growing need to keep a grip on inflation.

That means raising interest rates sooner and by more than it flagged only three months ago, as central banks move towards tightening monetary policy a decade after the financial crisis.

Data on Wednesday will show whether inflation continues to hold steady at 3 per cent where it has spent three of the last four months, and if November’s 3.1 per cent reading can be considered a post-Brexit peak.


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