US inflation disappoints

October 16, 2017

US inflation data for September was released last week, coming in at 2.2% over the previous 12 months. This was slightly under the 2.3% anticipated by economists, although an acceleration from the 1.9% posted in August. Furthermore, a closely watched metric of core inflation (stripping out the effects of volatile food and energy prices) was also weaker than anticipated and below the Federal Reserve 2% target. The primary driver of overall inflation in the month was higher energy prices, as a result of movements in the oil price. Other increases were recorded in food and property rental prices. The weak figures are likely to concern Federal Reserve officials, who would be hoping for higher inflation to support their continued tightening of monetary policy.

The UK trade balance in the three months to August 2017 (excluding commodities), widened by £2.9Bn to £10.8Bn. The increase was driven by a fall in exports to non-EU countries and a slight increase in imports. This has eroded the argument that a weaker Sterling will rebalance the economy towards exports and away from consumption. While there remains strong evidence to suggest that manufacturers continue to have strengthening order books, given that a large amount of the supply chain is based outside of the UK the currency benefit to the overall balance may be weaker than anticipated. This imbalance has been a continuous concern to policy makers and there appears to be little chance of it disappearing in the near future.

The Austria elections held over the weekend have been a reminder that the rise of populism has not died in Europe. The People’s Party’s Mr Kurz is set to become Europe’s youngest leader at 31 years old after taking his party significantly to the right to win over 31.6% of the Austrian electorate. Furthermore, he is likely to form a coalition with the far right Freedom party to create a government. The election is an example of the impact that support for minority extreme parties can have on mainstream politics. The coalition will likely result in sweeping changes to immigration controls as well increasing the opposition to liberal politics in the EU headed by France and Germany.

Index Open Close Change % Change
FTSE 100 7522 7535 13 0.17%
S&P 500 2549 2553 4 0.16%
Dax 12955 12991 36 0.28%
Cac 40 5359 5351 -8 -0.15%
Nikkei 225 20690 21155 465 2.25%
UK 10 Year Gilt Yield 1.364 1.38 0.016 1.17%

UK inflation data is to be released on Tuesday along with Chinese figures for retail sales, industrial output and consumer prices.