Inflation week

A big week for inflation data in front of us. China just published its numbers, and as you can see in the chart below, there is no more deflation or disinflation: both PPI and CPI came out stronger than expected at 2.8% and 1.2% respectively. India, Brazil and the U.S. wil report tomorrow and price increases are also expected. At the same time, GDP growth rates are coming weaker than expected, which points to a stagflationary scenario, where central banks don’t know what to do. If they lower rates, inflation might accelerate, with consequences on the long term yields. If they hike, their economies might fall into recession. The exercise that central bankers are conducting now consist on discerning wether the jump in inflation is temporary and mostly due to a spike in oil, or if it’s more entrenched in their economies. They might be biased to lower rates, but it’s difficult to see a central banker lowering rates while inflation is surging.

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