World Economy

Global Inflation May Take a While to Stir

Fed is likely to raise interest rates  three times in 2018.Fed is likely to raise interest rates  three times in 2018.

Global inflation is finally on the rise, the bond market has apparently declared, but the data do not yet point firmly to that conclusion, suggesting the low trend in place since the financial crisis may linger for a while.

What the US bond market appears to be reacting to as well is a different kind of worry, notably trillions of dollars worth of extra debt supply to digest from a US administration that has cast aside fiscal restraint with tax cuts and new spending, Reuters reported.

Indeed, for all the optimism about a punchy global economic upturn in which an exceptionally long list of countries are expanding at the same time, the two biggest central banks are due to keep running completely opposing policy this year.

Faced with robust US growth and now a sudden huge amount of fiscal stimulus in the pipeline, the Federal Reserve is likely to raise interest rates three times in 2018, with rising speculation around a fourth hike before the year is out. But the European Central Bank, trying to generate inflation out of a eurozone economy that is now booming by any historical measure, is still pouring on stimulus, buying €30 billion ($37.3 billion) of bonds a month through September at least. It is not likely to raise interest rates until well into 2019.

Part of that ongoing sharp divergence in policy of course is because the US economic expansion is more mature. And at 4.1%, unemployment is close to the lowest it can go, and so is more likely to push up inflation through higher pay.

But for two similar consumer-based economies, their core inflation rates, at least so far, are forecast to also remain similar and historically very low.

The latest Reuters surveys of private sector economists, taken in the last week, show no change to the inflation outlook across major economies.

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