The effects of inflation, and the risks of inflation
- US retail sales should show strength, though some of this is the result of inflation (gasoline prices). Underlying demand is growth supportive. However data yesterday does suggest further downward revisions to Q1 GDP (because of weaker healthcare spending).
- The situation in Iraq is widely described as civil war. Humanitarian considerations aside, markets will focus on the impact on the oil price (as being the way this transmits to economics). So far the reaction has been muted.
- Oil prices in Euros have obviously risen more than in dollar terms, and this further challenges the idea of a credible deflation threat in the Euro area. The ECB monthly bulletin, however, will doubtless seek to justify recent policy action.
- The IMF yesterday warned about the risks of a property crash in parts of the global economy - it is worth remembering that higher property prices are a threat if they provoke excessive household or bank leverage.
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