Global inflation pressures still mild, China still the worry

Sun Jul 12, 2015 11:29am EDT
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By Ross Finley

LONDON (Reuters) - Global inflation appears tamer than many had thought it would be by now, still held back by a modest outlook for economic growth, meaning central banks look likely to leave rates lower for longer -- or even ease policy further.

With a few exceptions such as Brazil, many major economies are still generating low or no consumer price inflation but instead higher asset prices, particularly stocks, and in many countries, a renewed pickup in house price inflation.

For those watching the world economy, China, not Greece, has for a while remained the number one concern.

The panic by the Chinese authorities last week as they went through tool after tool to halt the stock market's fall after a massive boom suggests serious concern about damage to a slowing economy that is generating just 1.4 percent inflation.

While growth is only expected to slow to 6.9 percent from 7.0 percent in the official data due this week, many suspect there is a much sharper economic slowdown. The recent sharp fall in oil prices reflects that view.

That said, Chinese citizens have much greater exposure to the housing market than to stocks and for now, the authorities appear to have successfully engineered a stock market rebound.

But for the economy, the growth momentum is still headed the other way. Jeremy Lawson, chief economist at Standard Life Investments, writes that "the long-term glide path is still down and most of the risks remain to the downside".

"Slow growth and moderating inflation explains why many emerging economies have been loosening monetary policy in recent months ...(but) there is a danger in taking things too far."   Continued...

People are reflected in a board displaying stock indices in Tokyo July 10, 2015.  REUTERS/Thomas Peter