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 Reflationary Pause
Online inflation has recovered robustly across Q3 in the US — a trend reflected in official data releases, especially in core inflation readings. This is partly sectoral — for example, used car prices have spiked unusually high due to distortions created by the pandemic. But PriceStats® data also illustrates that the rate of acceleration in inflation is beginning to run out of steam. The implication is that the current inflation rate is no longer on trend for an immediate return to 2%, which, of course, will have consequences in the context of the Fed’s new mandate.
Euro’s Deflation Questions
PriceStats® has captured a very different recovery path in the eurozone than that in the US. After a brief bounce, the disinflationary trend has quickly resumed. While online prices are still a little stronger than the surprise collapse into deflation in the official data last month, the trend is similar. This suggests that the eurozone is not suffering from the same pockets of supply-induced inflation shocks as the US is, and it also hints that the euro’s strength is impacting the overall inflation trend.
EM Inflation Returns
As participants debate the letter shape of the recovery in output growth, PriceStats® points to a W-shape for emerging market (EM) inflation. Partly driven by the recovery in energy prices, but also some currency weakness, our EM inflation index is again headed toward an annual rate of 8%. As concerning as this may be so early in the potential recovery, we take some consolation that, in a way similar to that of the US inflation trend, the rate of acceleration is beginning to moderate.
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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