Inflation – Acceleration in the US and moderation in China

Macro Highlights - 17/04/2018

In short
  • The rise in US inflation to 2.4% in March can be explained by the end of the negative effects of the sharp drop in mobile telephony prices one year ago. Prices were down 0.1% month-on-month
  • In China, after a peak in February due to the New Year holidays, inflation came in at 2.1% for March, below the official target of 3%, supporting our scenario of a moderate inflation

In the us, inflation has erased the negative effects of the fall in the prices of mobile telephony services in march 2017

US inflation accelerated considerably in March, leading to fears of a risk of an escalation of prices and worrying some inves tors. However, we believe that this rise is above all linked to the end of a temporary factor. Overall year-on-year inflation accelerated from 2.2% to 2.4% in March and core inflation – i.e. excluding food and energy – from 1.8% in February to 2.1% in March. This rise in inflation can mostly be explained by the end of the negative effects that had weighed on the annual growth of the p rice index since March 2017, when the prices of mobile telephony services fell sharply. Beyond this specific factor, the price trend was fairly lacklustre in March, as shown by the monthly change in the consumer price index, which was down a slight 0.1% ( see left-hand chart) and showed a moderate increase for the core index (up 0.2% month-on-month).

Taking account of the specific impacts of mobile telephony prices, we maintain our forecast of a moderate acceleration in inflation in 2018, notably as the potential rise in nominal wages is set to remain contained. There is still a reserve of available workers currently excluded from the labour force, which could limit the wage bargaining power of employees. 

In china, inflation has slowed following the rise in food prices in february

In China, inflation came in at 2.1% in March following the peak of 2.9% reached in February. This figure was below the offici al target of 3% of the People’s Bank of China. Food price inflation – especially the price of pork – was significantly lower, down from 4.4% to 2.1%, following the end of the holidays for the Chinese New Year (see right-hand chart). Inflation excluding food and energy prices also slowed, to 2.0% in March vs. 2.5% the month before, underpinning our scenario of moderate inflation in China in 2018. Production price inflation continued to decelerate, and was recorded at 3.1% in March vs. 3.7% in February. This trend echoes the February and March decline in the output prices sub-component of the manufacturing purchasing managers index for China.

François Léonet - Economist, Emerging markets,
Lisa Turk - Economist, the United States,