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What to do when inflation is too high?

| Posted by: Paul Donovan | Tags: Paul Donovan

  • The Bank of England meets with low unemployment and inflation above target. Markets expect the BoE to behave like a proper central bank and focus on the medium-term trends and risks rather than temporary short-term distortions, leaving rates unchanged.
  • Assorted pieces of Chinese data were released, covering consumers, investment and production. The numbers were generally a little weaker than consensus. The numbers were generally consistent with above-trend growth. The numbers were consistent with economic growth above the government's 6.5% target. Is anyone surprised China will beat its target? Anyone?
  • US consumer price inflation is due. The consensus is for 1.8% y/y. The average of the last 20 years was 2.1% y/y. This looks like a normal inflation rate. This is August data, unaffected by the recent natural disasters. Over the medium term, reconstruction may raise inflation as housing costs increase in a tight labor market for construction.
  • The Eurozone has final French and Italian consumer price inflation. The flash estimates rather rob this data of any excitement, and the only thing that will be emphasized with today's numbers is the degree of divergence in the Eurozone's inflation experience.