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PriceStats® Analysis
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.
US Inflation Stable for Now
The most recent round of lockdowns has paused the price normalization trend that has been in place since the summer. While PriceStats® indicates mostly stable prices to end the year, broad variability across inflation components continues. While electronics retailers were forced to follow their average year-end discounting plans, clothing joined food and equipment in recording above-average year-end prices. Prices are unlikely to surge in the near term given mobility restrictions will likely continue until vaccinations are administered broadly. Having said that, fiscal stimulus, high savings rates and continued low inventory levels set up the potential for upward pricing pressures to emerge in the spring.
Source: State Street Global Markets, as of December 31, 2020.
Euro’s Prices Avoid Deflation — For the Moment
PriceStats indicates that eurozone prices firmed up in December and will likely climb out of deflationary territory in the coming months. While this should be welcome news to the European Central Bank (ECB), online prices remain well below 1%, and therefore well behind the central bank’s 2% target. As in the US, prices will likely remain soft as governments try to control the spread of the virus until vaccinations can be broadly administered. The strong euro will further challenge rebounding prices, particularly if US dollar weakness continues, as is widely expected. Stimulus plans to combat the pandemic have been slower to roll out than in the US, which may make any recovery in eurozone prices a more drawn-out affair than what may occur in the US in coming quarters.
Source: State Street Global Markets, as of December 31, 2020.
EM and DM Divergence
Emerging market (EM) prices continue to bounce back sharply following their spring swoon in inflation readings, and now stand at 18-month highs. This contrasts with inflation in developed markets (DM), which has recently stagnated as many countries/regions have not been able to get back to even 1% inflation readings. Somewhat concerning for EM, food inflation appears to be driving much of these gains at a time when the developing populous continues to struggle with economic hardships created as a result of the virus. Unlike prior cycles where EM central banks often follow their DM counterparts, EM banks may be forced to tighten credit proactively in the face of rising inflation concerns.
Source: State Street Global Markets, as of December 31, 2020.
Emerging Markets
Developing countries where the characteristics of mature economies — such as political stability, market liquidity and accounting transparency — are beginning to manifest. Emerging market investments are generally expected to achieve higher returns than those of developed markets but are also accompanied by greater risk, decreasing their correlation to investments in developed markets.
Inflation
An overall increase in the price of an economy’s goods and services during a given period, translating to a loss in purchasing power per unit of currency. Inflation generally occurs when growth of the money supply outpaces growth of the economy. Central banks attempt to limit inflation, and avoid deflation, in order to keep the economy running smoothly.
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