What you are seeing now with core inflation measures that are
below headline inflation, and where they have been drifting down, is just a reflection of the excess capacity we have had over the last year.
Not exact matches
We have a different view on
inflation, which we see
below 2 percent even in 2018,» analysts at Bank of America Merrill Lynch said in a note on Wednesday, explaining that oil prices will keep
headline inflation low.
Below is a graph comparing CORE
inflation (excludes food and energy - light orange line) and
headline inflation (includes food and energy during the 1972 - 1975 period.
The ECB said
headline inflation would be at 1.5 percent in 2017 and 1.2 percent in 2018,
below its target of around 2 percent.
As long as the country's
headline inflation rate stays
below 5 %, markets won't get too upset about what it is really measuring.
Below is a graph comparing CORE
inflation (excludes food and energy — light orange line) and
headline inflation (includes food and energy during the 1972 - 1975 period.
The European Central Bank remains very far away from hitting its objective for
headline inflation of slightly
below 2 %.
But the mixed economic picture was underlined by the same month's
inflation report, showing annual price rises
below consensus forecasts at the
headline level and a slight decline in core
inflation.
This is contributing to a continuation of
inflation rates that are
below target in most advanced economies, although in
headline terms they are mostly higher than a year ago.
The
below chart illustrates U.S. oil production (in gold) vs. FED's balance sheet (in blue), and how overproduction from accommodative monetary policy resulted in the sharp decline in oil prices, creating a systemic risk that was again transmitted from financial and commodity markets to the real economy (in job losses and slow growth in Texas and other oil producing states, as well as the decline in
headline inflation, pushing the Federal Reserve further from the price stability objective):
The comparable figure for
headline inflation moved up from 1.5 % to 1.9 %, bringing it back up to the ECB's target of slightly
below 2 %.
Rising energy costs pushed the
headline month - on - month figure up to 0.4 %, while the annual gain rose from 1.6 % to 1.9 %, only a tenth
below the Fed's target for
inflation.
Falls in mortgage interest rates detracted 0.5 of a percentage point from the quarterly
headline rate and, on a year - ended basis, interest rate reductions that have already occurred will keep the
headline inflation rate
below the underlying rate for some time.
While this phenomenon is most common among developed economies, some emerging markets also suffered from it: for example, China's
headline inflation rate recently dipped
below 1 %.