Headline inflation also generally softened as the impact of the commodity price rebound of the second half of 2016 faded, and remains at levels well
below central bank targets in most advanced economies.
The question is whether this will translate to a push for euro zone inflation towards the European
Central Bank target of just below two percent.
However, with the exception of the United Kingdom, underlying inflation remains below
central bank targets in these regions.
Inflation remains
below central bank targets, but core inflation appears likely to rise in all G3 regions — the Euro area, Japan and U.S. — through 2018.
So firms that change their prices twice as frequently get twice the weight in the average that
the central bank targets.
Second, inflation targeting could be replaced by a flexible price - level or nominal GDP targeting framework, where
the central bank targets a steadily growing level of prices or nominal GDP, rather than the rate of inflation.
Conversely, an unanticipated overshoot on inflation in Europe and Japan, where expectations are still very low relative to
central bank targets and deflation, could turn out to be a positive for stock markets.
In contrast, our GPS points to inflation in the eurozone and Japan bottoming out but stuck well below
central bank targets.
Despite solid growth, inflation continues to lag
the central bank target of 2 %.
Conversely, an unanticipated overshoot on inflation in Europe and Japan, where expectations are still very low relative to
central bank targets and deflation, could turn out to be a positive for stock markets.