The Brazilian real’s dramatic drop has left the central bank with two options: jack up rates aggressively in one startling move, or tolerate higher inflation for longer.
The biggest attention grabber out of Japan is today’s 7.7% moonshot on the stock market, based on hopes of further central bank stimulus in Asia as well as an expected corporation tax cut over the next few years. Never mind that this comes just one day after the Nikkei joined many other major global stock indexes in wiping out its gains for the year.
British wage growth will outstrip the Bank of England’s forecast this year but that doesn’t mean the first rate hike will come sooner.
Brazil’s relentless series of interest rates hikes is successfully lowering inflation expectations – despite recent signs to the contrary, from lottery to tomato prices.
Brazil’s monthly inflation rate eased below 1 percent for the first time this year in April and inflation expectations for 2016 have dropped for the first time in two and a half months.
High inflation is a drag on economic growth in the world’s second most populous country and matters immensely to over 400 million people, or over a third of India’s total population, who struggle to earn enough to feed their families three meals a day.
Another reason the Federal Reserve may have additional room for monetary easing: Inflation expectations fell sharply in May, according to the latest Thomson Reuters/University of Michigan survey of consumer sentiment. Inflation expectations five years out dropped to 2.7 percent in May, the lowest since January. Fed officials often say expectations are a key leading indicator of actual price increases.
When it comes to the price stability half of their mandate, Federal Reserve officials have made one thing clear: they will not allow inflation expectations to veer very far from their preferred path. That’s because they believe inflation expectations are a good proxy for the pace of future price increases.