PriceStats® Analysis: Global Inflation Surge

A look at quarterly measures of inflation, based on prices of millions of items sold by online retailers, to help investors anticipate and evaluate the impact of inflation.

Inflation readings are set to surge globally as the deflationary impulse from last spring’s lockdowns are expected to reverse in the coming months. Since the decline in US prices last year was one of the largest, the subsequent bounce back will appear to be one of the strongest. This, however, is well understood and largely viewed as transitory, with practically every Federal Reserve (Fed) speaker expressing a view that the jump in prices will not last. Nonetheless, there are signs that the recent rise in inflation readings reflect more than just base effects, with stronger-than-average monthly readings since the end of last year. Ultimately, it will take several months to sort it all out and we won’t have a clear sign on structural versus transitory pricing pressure until later this year.

PriceStats® Daily US Inflation Index (YoY%)

Source: State Street Global Markets, as of March 31, 2021.

Not All Peripheries Are Created Equal

The eurozone has always been challenged by the disparate economic profiles of the member states. While the most obvious example has been the performance of the core countries versus the periphery, differences have also emerged within the groups. Italy has been the most economically fragile, even before becoming the epicenter of the virus on the continent. Yet another round of lockdowns in Italy is further complicating the inflation picture as it now has the weakest inflation profile of the European economies tracked by PriceStats. While the European Central Bank (ECB) is likely encouraged by the overall rise in prices, the wide variances in economic performance will continue to challenge a cohesive policy response.

Source: State Street Global Markets, as of March 31, 2021.

Brazil Inflation Rising

Prices in Brazil have bounced backed sharply over the past few quarters and continue to accelerate. PriceStats showed monthly gains of more than 2 percent at the end of Q1. While energy makes up a large portion of these gains, industrial goods are also driving upward pressure, no doubt impacted by the weaker Brazilian real. This inflation profile prompted the Central Bank of Brazil to be one of the first monetary authorities to hike rates, raising the Special Clearance and Escrow System (SELIC) by 75 bps to 2.75 percent and signaling a comparable hike when they meet again in May. The timing of these hikes during a challenging vaccine rollout will pressure the economy and, for the moment, signals concerns of inflation topping growth.

Source: State Street Global Markets, as of March 31, 2021.