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Inflationary pressures are building around the world, except in Australia and New Zealand.
That view is captured perfectly in the chart below from Deutsche Bank.
Deutsche refers to it as its “inflation sensation,” a visual indicator that uses more than 150 inflation time series across G10 currencies that provides a snapshot of where different countries stand on inflation.
Blue shading indicates that inflation readings in individual nations are running below historical averages, while red shading indicates the opposite.
Right now, Deutsche says inflation readings continue to rise in most nations with the most notable upward price pressures in the US, Japan, Canada and Switzerland.
“The US continues to show the broadest increase in inflation pressures with rising price pressures across consumer and producer prices as well as wages,” says George Saravelos and Rohini Grover, FX Strategists at Deutsche Bank.
And despite all major inflation readings sitting well below the levels seen in other G10 currencies, Saravelos and Grover describe recent Japanese readings as “interesting,” noting that “inflation greenshoots are building with the rise in wage pressures most notable”.
The pair also suggest that the inflation outlook in Europe remains mixed with “recent setbacks in consumer and producer prices but a notable acceleration in wages and continued improvement in inflation expectations”.
However, while inflation indicators in most regions suggest pressures are building, Deutsche says Australia and New Zealand are the two G10 economies that have yet to show convincing signs of inflation recovery, suggesting that “price pressures remain very subdued”.
The divergence in inflationary pressures helps explain recent changes in monetary policy settings with the US Federal Reserve, European Central Bank, Bank of Canada and Bank of England all in the process of reducing policy stimulus while the RBA and RBNZ continue to leave official interest rates at the lowest level on record, a stance that looks set to continue for some time yet based on current market expectations.