Low inflation, but not that low

Posted by: Paul Donovan

10 Jul 2020

Daily update

  • The data calendar is crowded with price data, for the month of June. Assorted European countries are offering consumer prices. Japan has already delivered producer prices, and the US is due to publish its producer price data too. Producer prices are generally a better indicator of corporate pricing power than are consumer prices.
  • Price data probably understates inflation (especially consumer price inflation) at the moment. Prices that cannot be measures are assumed to be unchanged. This means that inflation overstates the number of prices with no change and understates the prices that are rising. It is not a huge problem, however.
  • Overall, we remain in a low inflation environment. The demand shock of the virus is greater than the supply shock. Although demand is bouncing back, this is a temporary surge and is unlikely to be met with general inflation.
  • France and Italy offer industrial production for May. Business sentiment opinion polls signaled a deep, deep contraction, even as lockdowns eased. This seems very unlikely. Economists expect that (in month-on-month terms) production increased in both countries. With typical pinpoint precision, the economic consensus has French data somewhere with a 23% range, and the Italian data is expected to grow somewhere from 10% to 40%. 

Explore more CIO Daily Updates