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The welcome return of inflation?

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  • Euro area inflation is due today, and after a series of positive surprises at a national level there is an expectation for upside risk to this number. This inflation increase is nothing to do with Mr Draghi's big idea of quantitative policy. It does stress that the normalisation of inflation is likely when the disinflation from oil prices fades.
  • China cut interest rates a quarter point overnight, and moved a little further towards liberalisation with a deposit rate adjustment. The rate cut will help the already indebted (to the extent that it is passed on to borrowers), but for credit growth lending limits and reserve requirements need to change.
  • Manufacturing sentiment from the Euro area (PMI) and US (ISM) are due. These numbers need to be treated with caution given their tendency to overreact to underlying economic data. France is expected to show contraction (it is not contracting), other Euro area economies mild expansion.
  • US personal income and spending data may be of most interest. The income data should show strength, but the lower oil price will impact nominal spending (forecast -0.2%). The core PCE deflator, which still has an embedded oil component, is forecast 0% on the month and 1.3% year over year, but with the recent positive inflation surprises this may be worth some attention.