Daily update
Daily update
- This week has increased certainty about interest rate reductions in the world’s main economies. That certainty was absolute in Switzerland, where rates were cut. The uber hawks of the Bank of England had their wings clipped, and the Federal Reserve may start to believe that US trend growth is higher.
- There are three reasons central banks may be certain about cuts. Inflation is not precise, and so inflation targets are best thought of as a range—with a 2% target, cutting at 3% (or raising at 1% is reasonable). Disinflation forces are clear in the detail of data—increasingly, inflation rates are propped up by quirks and administered prices.
- Rate increases may have had less impact on inflation than is supposed. Rate increases did little to resolve transitory inflation (that was inevitable), and have almost no impact on energy prices. Profit-led inflation is in retreat as consumers rebel, not as interest rates rise. This may blunt the inflation impacts of further rate moves.
- UK February retail sales volumes were not as weak as expected—but consensus expectations are based on a handful of forecasts with some pessimistic outliers, so care is needed in the comparison. The German ifo business sentiment poll is due.
