In November, US headline inflation made a dramatic collation, dropping to 2.7% year-on-year. Meanwhile, core inflation dropped, too, coming in at 2.6% YoY. In the euro area, inflation remained steady at 2.1% on an annual basis. At the same time, core inflation remained unchanged at 2.4% YoY. This stark difference in inflation trajectory highlights the different economic situations and inflationary pressures across the Atlantic.
In the euro area, inflation in services jumped, increasing to 3.5% y/y in November. This recent increase is a sign that the service sector is still experiencing ongoing, entrenched inflation, even with general price inflation being stable. Services inflation increased considerably, going as high as 8.5% y/y at one point in the same period. The three-month SAAR measure of services inflation peaked at 3.4%. This stat underscores just how tough the services market continues to be.
US inflation cooled significantly in November. This points toward a potential relief of the inflationary price pressures that have weighed on consumers for much of this year. US consumer expectations have sunk to their lowest point. This drop indicates that optimism is still tentative as households continue to adjust to changing economic realities. The US short-term, market-based, inflation expectations have fallen sharply. By contrast, the euro area has so far experienced a greater persistence of more benign expectations.
Long-run inflation expectations remain anchored in both areas. That would suggest a pretty widespread consensus on the long-term direction of prices, even if there’s a lot of short-term noise.
In Asia, China’s CPI jumped from 0.2% y/y in October to 0.7% in November. The year-over-year increase to 3.7 percent indicates a modest reversal in inflationary pressures. China’s core CPI remained unchanged at 1.2% YoY. This measure of stability can be interpreted to signal an underlying inflation environment that is more resilient, even withstanding exogenous shocks.
Economies are experiencing a paradoxical double whammy. Analysts expect such diverging inflation rates to influence monetary policy in both the US and euro area. Policymakers must carefully assess the implications of these developments to ensure that economic growth can be sustained while managing inflationary risks effectively.