Global Inflation Indicators Turning, Second Round Effects Key

Some global inflation indicators are steadying and some are becoming less disinflationary or in the case of oil now putting upward pressure on prices. The US saw a 0.5pp increase in headline inflation in August and Australia’s RBA cited rising fuel prices as making the return to target “uneven”. The key will be if there will be second round effects on core from higher costs.

• Oil is a risk to the inflation outlook depending if the increase in fuel prices leads to an increase in other prices. Brent crude is now 23.7% higher since June and up almost 9% in September. With the market projected to remain tight into Q1 2024, prices are likely to remain high if they don’t rise further. There is an increasing number of analysts forecasting crude to reach $100/bbl.
• FAO food prices fell 11.8% y/y in August and while they are off the May trough continue to put downward pressure on prices. But in Asia the 21.5% rise in rice prices since June (with September +8% m/m) is creating food price pressures.

• The Federal Reserve of NY’s measure of global supply chain pressures was stable in August at -0.9 but it is off the trough of -1.6% in May. The easing of supply chain pressures continues to add disinflationary pressure but less than it has.

Source: MNI - Market News/Refinitiv

• Shipping rates troughed at the start of the year according to the Baltic Freight Index and are up 19.2% in September to date after +10.3% in August. Lower shipping costs have been important in bringing inflation down.
• LME metal prices are up slightly in September to be +2.4% y/y. They also look to have troughed at the start of the year. Iron ore is up strongly this month rising 11.1% to be +20.8% y/y. While wool, used in many manufactured textiles, is down for the seventh straight month and down 12.3% y/y.