Global Inflation Dynamics: A Comparative Analysis
Inflation figures and economic forecasts reveal a complex picture of global economies, with data showing contrasting patterns in the US, Switzerland, China, and the UK.
Charlie Kennedy
- 2024-01-06
- Updated 07:44 PM ET
(NewsNibs) - The Consumer Price Index (CPI) year-over-year (Y/Y) growth in the US for November was recorded at 1.4%, which fell below the anticipated 1.7%. This figure, indicative of a continued decline in inflation, comes amidst the Federal Reserve's ongoing battle to achieve price stability. The US market has already priced in six 25 basis point rate cuts for the forthcoming year; however, the Federal Open Market Committee (FOMC) currently anticipates just three cuts. November's CPI data corroborates the downtrend in inflation, although core inflation persists above the Federal Reserve's target levels. The services sector, showing an uptrend in prices, may hint at potential future inflationary pressures. Alongside this economic assessment, Q4 earnings growth for the S&P 500 is estimated at 2.4%, a downward revision from the initial 8.1% year-over-year prediction. Before the earnings season, there has been a mix of 72 negative EPS guidances and 39 positive EPS guidances from S&P 500 companies. US corporate profits are projected to climb by 11.1% this year after a modest 3.1% increase in 2023, with S&P 500 valuations sitting above the long-term average at 19.8 times forward 12-month earnings. Analysts are closely monitoring Q4 reports for further insights into the impact of higher rates on the economy and corporate earnings. US GDP is forecasted to marginally increase by 0.1% month-over-month (M/M) in November following a 0.3% contraction in October.
Swiss and Chinese Inflation Trajectories
The Swiss National Bank (SNB) has a more positive forecast, expecting inflation to average at 1.8% in the first quarter of 2024, projecting it to remain within the desired target band of 0-2% throughout 2024. Contributing to the moderation in inflation, Switzerland experienced a -0.2% month-over-month (M/M) decrease in CPI for November, tied to lower fuel, hotel, and holiday pricing, mostly from imported goods. Nonetheless, with the next update on Swiss Rental Rates due in February and the SNB policy announcement in March, observers remain watchful. There are no current estimations for December's Swiss Trade Balance, while the previous balance stood at 35.39 billion USD with negative imports and positive exports variations of -0.6% and +0.5% respectively. In contrast, China experienced an unexpected 0.5% Y/Y rise in exports for November, defying projections of a -1.1% decline. However, Chinese exports are grappling with tighter profit margins and limited room for price cuts. Continued concerns over domestic demand within China are underscored by weak import numbers for November. Analysts are anticipating low inflation in China in the near term but are ruling out a deflationary spiral. They project that core inflation will rise in the first half of 2024 due to policy support, averaging 1% across 2024, up from 0.3% so far this year.
Economic Outlook for the UK and Anticipated Rate Adjustments
The UK's economic forecast is cautiously optimistic, with Investec predicting a 0.2% GDP increase for November. However, this may not be enough to stave off a technical recession. The potential upturn in GDP for November could reflect robust retail sales, the absence of NHS strike action, and increased heating requirements due to cooler weather. Despite potential signs of recovery, higher interest rates may cap economic growth, with Investec expecting UK activities to remain muted into the first quarter before rebounding later as inflation subsides. Financial markets are adapting their outlook for the Bank of England's (BoE) first rate cut, which might move from June to May depending on forthcoming GDP data. By year-end, the markets are pricing in approximately 120 basis points in BoE rate cuts, showcasing the complexities of monetary policy in turbulent economic times.
In summary, various global economic indicators denote a period of cautious maneuvering as central banks and financial markets react to evolving inflation rates, trade balances, and GDP forecasts. The interplay of these factors is likely to have continued and substantial impacts on both domestic and international financial landscapes.
