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5 May 2016
All about the base: Headline CPI to pick up - Nomura
Research Team at Nomura, notes that the commodity prices have continued to rally since their lows in February, with the WTI hovering around $45 a barrel.
Key Quotes
“We update our calculations of the impact of changes in energy prices on headline inflation in the G10 countries.
Making the assumption that oil prices remain at current levels of around $45 a barrel, we estimate that the contribution of energy base effects to headline CPI inflation in the US could be +1.5pp by March 2017. We also find that the base effect will push Eurozone inflation out of deflation in August, all else being equal (though our real-time inflation tracking actually puts the Eurozone out of deflation on a rounded basis in May. Japan has the second-largest base effect in the G10, at 1.4pp, closely followed by the Eurozone at 1.1pp. Switzerland, the UK, Sweden, New Zealand and Australia all have considerably smaller base effects. In terms of timing, base effects start to take hold significantly in the second half of Q3 2016.
We noted that core inflation in the G10 has been picking up recently. As base effects take hold, central banks may begin to face rising headline inflation. This is likely to support consumer inflation expectations, and could reduce somewhat some central bank easing pressures.”
Key Quotes
“We update our calculations of the impact of changes in energy prices on headline inflation in the G10 countries.
Making the assumption that oil prices remain at current levels of around $45 a barrel, we estimate that the contribution of energy base effects to headline CPI inflation in the US could be +1.5pp by March 2017. We also find that the base effect will push Eurozone inflation out of deflation in August, all else being equal (though our real-time inflation tracking actually puts the Eurozone out of deflation on a rounded basis in May. Japan has the second-largest base effect in the G10, at 1.4pp, closely followed by the Eurozone at 1.1pp. Switzerland, the UK, Sweden, New Zealand and Australia all have considerably smaller base effects. In terms of timing, base effects start to take hold significantly in the second half of Q3 2016.
We noted that core inflation in the G10 has been picking up recently. As base effects take hold, central banks may begin to face rising headline inflation. This is likely to support consumer inflation expectations, and could reduce somewhat some central bank easing pressures.”