观点

Given that the Bank of Canada has a poor track record of forecasting inflation by missing inflection points and understating inflation waves, I think they should take out insurance against the risk of inflation being higher and more persistent than they are forecasting.

Chart 1 provides the evidence; each line shows the BoC’s inflation forecast drawn from past MPRs and compares it to the actual line.

Taken together, these pressures increase the upside risks to global inflation and monetary policy tightening.

CPI excluding food and energy inflation was unchanged at 2.1% year-over-year, pointing to relatively contained price growth outside the most volatile categories.

We’ve now slightly revised up our forecast for inflation for the first half of 2027.

Needless to say, forecasts of headline inflation, in particular, are subject to significant revision given the uncertain outlook for the Middle East conflict and uncertainty about how that will be reflected in global energy prices.

Ahead of this week’s important Q3 CPI report – which could prove decisive – we have made no changes to our forecast for the RBNZ’s policy settings.

So, for now we continue to think that despite the higher near-term inflation outlook the RBNZ will stick with the strategy communicated in the September Monetary Policy Statement, i.e. that at the 28 October meeting it will pause to assess the impact of this year’s 50bps of policy tightening, before considering a further upward adjustment in December.

Given higher prices, at face value this points to a weak quarter for volumes (this week’s CPI report will cast more light on pricing behaviour during the quarter).

This is why we were puzzled by the passage in the RBA minutes this week suggesting that cost pressures reported in business surveys might imply that the unemployment rate consistent with inflation at target (the NAIRU) has risen.

Thus, Australia ended up with wages growth too low to be consistent with inflation at target, and the peculiar spectacle of a central bank governor complaining that wages growth was too low.

The stronger the tendency towards cost-plus pricing, the worse the inflation response to a supply shock.

That adds up to economy-wide behaviour that looks a lot like firms (in aggregate) setting prices according to expected inflation (in aggregate), but under the hood something quite different is going on.

If firms’ beliefs about future economy-wide inflation do not matter much in their pricing decisions, then neither does the credibility of a central bank’s commitment to return inflation to target.

The mechanism to get inflation down then must be simply to weaken demand enough to convince firms that cost-plus will not fly in the market.

It does, however, imply that if supply shocks fade or even self-correct, so will high inflation.

We hold a similar view, anticipating that one more hike by year end and a little time will bring inflation near the 2.0%yr medium-term target.

However, as discussed in this month’s Market Outlook , capacity pressures are likely to see inflation consistently above target, rather than below, in coming years – particularly if, as we suspect, capacity in the housing sector remains tight.

► AI financing concerns outweigh stronger than expected inflation data, as the CPI report gave us the ability to complete our scaling into 2yr longs.

Inflation pressures also persisted with anet 31% raising selling prices in September and the same net share planning further price increases over the next three months, while the share citing inflation as their single most important problem jumped 4points.

Given the post-CPI selloff, these levels were hit and we now stand with an average entry of 4.88%.

Core inflation, which excludes energy, food, alcohol, and tobacco, was recorded at 2.5% yoy, aligning both the flash estimate and our own projection.

By contrast, headline inflation was lower in Germany (3.3%) and France (3.4%), while core inflation stood at 2.5% and 1.8%, respectively.

Considering the final inflation estimates and subsequent price developments, we now expect headline inflation to average 3.0% year on year and core inflation to average 2.4% in 2026.

Services inflation stood at 2.8% yoy (-0.1% mom), and its contribution eased to 1.3 pp, mainly due to lower contributions from transport services.

At the same time, upside risks to inflation from higher fuel prices and a severe El Niño could add to domestic price pressures.

BSP is likely to err on the side of caution and maintain a tightening bias to tame inflation expectations until it’s confident prices are on a path back to target.

Inflation remains above target and economic growth is relatively resilient.

Inflation in Saudi Arabia remains contained, rising by 1.9% y/y in September and in line with its pace for the rest of the year.

Trading was volatile following a sharp jump in producer prices, which added to inflation concerns after Wednesday’s hotter -than-expected CPI report.

On the data front, US producer inflation surprised sharply to the upside, rising by 1.3% MoM in September from 0.5% in the previous month, marking its largest monthly increase since March 2022.

Later in the day, the eurozone will publish its final September CPI, following a flash estimate of 3.8% YoY, while the US will release September industrial production and import price index.

Higher inflation will push up the wage bill across government.

Chris Turner EUR: Inflation to be confirmed at 3.8% today Today's eurozone data should see September CPI confirmed at 3.8% – well above the European Central Bank's 2% target.

Markets are still reeling from the hawkish set of inflation forecasts delivered at the ECB September press conference, a key driver of the near 75bp of further tightening expected from the ECB.

And yes, with these underlying price pressures set to filter through to CPI sooner or later, consumers may soon have to dig a little deeper into their pockets.

Rising input costs put pressure on food prices Source: CZSO, ING, Macrobond Taking all this on board, our forecast of headline inflation averaging 3.4% next year and peaking at around 4% in February looks about right.

Recent inflation data has boosted the likelihood of a rate cut.

Given the September CPI reading and domestic demand weakness, we expect the central bank to cut the policy rate by 100bp in the October MPC meeting to 36%.

At the same time, a hold remains plausible, as the recent slowdown in CPI was overwhelmingly food-driven, while a renewed acceleration in overall inflation, taking it further away from the 5% long-term target, remains a risk.

The post-CPI rally suggests the economy’s sensitivity to the level of rates may have increased.

• What we’re watching next week :The focus in Europe next week will be on UK data, including jobs and inflation, and the flash October PMIs.

Beyond the usual growth and inflation signals, we will be watching for any evidence in the surveys that budget uncertainty in the UK and France is weighing on business sentiment.

There are signs that AI adoption is occurring relatively fast in the UK’s services -orientated economy Private sector hiring remains subdued despite relatively firm economic activity What we’re watching next week Flash PMIs and UK inflation: Next week will bring a busy run of UK data ahead of the Budget on 28 October.

Both consumer and producer price inflation surprised to the upside, and unlike last month, there was no single area clearly skewing the numbers higher.

Rental costs, which make up a whopping 44% of the core inflation basket, should continue to gradually ease given the cool state of the US housing market.

Put that together, and it’s not difficult to see how inflation gets much closer to 2% by the second quarter of next year, when the energy story also starts to filter out of the annual comparison.

Inflation (Wed): We expect headline CPI to rise to 3.5%, on a path towards 4% around the turn of the year.

• Next week will bring a flurry of economic data, including the latest inflation report.