Daily update
Daily update
- The ECB and the Bank of England meet. The ECB decision can be dismissed with a shrug of indifference. The Bank of England is expected to cut rates, but the depth of division amongst policy setters is a focus. More rate cuts are likely next year.
- US November consumer price inflation data is very likely to be distorted, and could underreport inflation. Prices were surveyed later, the lack of October data makes guessing missing November prices harder, and the amount of guesswork about prices increases.
- Technically distorted data has its dangers. Inflation perceptions are shaped by high frequency purchases and can disagree with an official story of easing inflation. Consumers often hold a reference price in mind for 12-18 months—creating a narrative that “inflation isn’t lower since this chocolate bar costs USD 1.50 and it was only USD 1.00 last year.”
- If prices have fallen but are rising in monthly terms, inflation stories become more complicated. If the price of a high frequency purchase keeps rising every month, even if the price is below its highs consumers are less likely to accept a deflation story. Inflation perceptions do not necessarily change consumer behaviour, but if inflation perceptions diverge significantly from reported inflation confidence in data may weaken further.