Inflation and yield Monetary policy

Inflation status in major economies

Here is a snapshot for some major economies in October:

The U. S. – 1.0%. This is slowest gain since 2009. In the minutes of the October FOMC meeting, economists predicted that the inflation in the U. S. will remain below target of 2 percentage through 2016. The prediction might pave the way for the Fed to further clarify or strengthen its forward guidance for the federal funds rate. The strategy could be used to mitigate reduction of asset purchases in the coming months.

Canada – 0.7%. This is the slowest in the last few months. The slow inflation and weak exports from Canada reflect sluggish world demand of resources in Canada. The Bank of Canada thus will have no rush to raise its policy rate and the Canadian dollar will be pressured further in coming months.

Euro zone – 0.7%. It is lower than 1.1% of previous month. Falling energy prices, slack in employment and weak economy will contain the inflation. As a matter of fact the increasing risk of deflation prompted the ECB to cut the policy rate to 0.25%. Strong euro worries the ECB and does not help the economy recovery in the southern EU countries. The ECB, in the context of the political framework in euro zone, might pursue more accommodative monetary policies to help economic recovery.

Japan – 0.7%. Helped by the ultra loose monetary policy from the Bank of Japan since early this year, the inflation in Japan rose for the fifth straight months. But the number is still far below the inflation target of 2%. Considering the massive monetary effort, the small inflation number still poses high risk of returning to deflation in Japanese economy.

U. K. – 2.2%. It is lowest since September 2012. The number is also slower than forecast and this will ease the worry of the Bank of England.

In summary, there is little inflation risk around the major economies in the world. The central banks will be edging their effort against deflation risk and therefore hold their stimulative policies in place or even strengthen them in the short and mid term.

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