Desperately seeking signs of inflation

Fri Feb 12, 2016 10:34am EST
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Sumanta Dey

(Reuters) - Now markets have delivered their verdict on inflation - it's not picking up any time soon - economic data due next week will show whether price pressures are rising meaningfully or falling back in some of the world's major economies.

A global rout in stock markets, currencies, commodities and bond yields has so far defined 2016 as investors have seemingly lost faith in central banks' abilities to boost inflation, with signs the world economy is stalling.

Five-year inflation-linked swaps in the euro zone EUIL5YF5Y=R, for example, suggest annual price growth will be just 1.4 percent even as far out as 2021.

"Most people don't understand what has spooked markets. It's up to economic data now to demonstrate that markets have gone overboard in projecting very low inflation," said Jeavon Lolay, head of economics at Lloyds Banking Group.

"One reason is probably that markets don't believe the response from policymakers is adequate."

The Bank of Japan surprised markets late last month by cutting its deposit rate to negative. But the impact seems limited to some knee-jerk weakening in the Japanese yen JPY=.

Sweden's Riksbank also slashed its repo rate to -0.50 percent on Thursday, partly as insurance against expectations that the European Central Bank would ease policy in March.

Inflation data from Britain, Canada, China and the United States next week may set the tone for the global economy.   Continued...

Foreign currency banknotes are placed on a basket for counting during a photo opportunity at the bank's headquarters in Seoul November 9, 2010.  REUTERS/Jo Yong-Hak