Anna 
Inflation continues to be a complex phenomenon with various driving forces, creating an intricate picture for the United States, the euro area, and China. While specific aspects hint at inflation declining in the U.S. and the euro area by 2023, certain factors bear watching as they impact these regions.
Inflation Drivers: The factors influencing inflation are multifaceted, and the balance is ever-changing. Price pressures on food and freight have significantly eased, and although oil prices have increased since the summer, their contribution to annual inflation remains negative. Underlying inflation and wage growth have started to decelerate in the United States, yet they continue to exhibit volatility in the euro area. Tight labor markets are poised to sustain upward risks to core inflation in both regions. A prevailing sentiment suggests that many Western central banks have concluded their interest rate hike cycles.
Inflation Expectations: Short-term inflation expectations among consumers have shown signs of moderation, particularly in the United States, although they remain slightly above pre-pandemic levels. On the other hand, longer-term inflation expectations among U.S. markets have inched higher over the past month, aligning with the current target of the Federal Reserve.
United States: In an unexpected turn of events, the Consumer Price Index (CPI) rose for the second consecutive month in September. The overall CPI witnessed a 0.4% month-on-month increase, although the original value stood at 0.6%, exceeding the consensus of 0.3%. Core CPI was more in line with expectations, registering a +0.3% month-on-month change. The energy contribution saw a decrease but slightly below anticipated levels. The unexpected surge was primarily propelled by housing and healthcare inflation, both of which are influenced by a calculation lag. In other sectors of core services, broader price pressures eased, reflecting subdued wage inflation. Core commodity prices fell (-0.39%) as the United Auto Workers (UAW) strike has not yet significantly impacted used car prices.
Euro Area: Inflation took a significant dip in September, largely due to base effects. The decrease in inflation was widespread, with headline inflation dropping from 5.3% in August to 4.3%, and core inflation falling from 5.3% to 4.5%. Nevertheless, monthly growth exhibited positive trends, with core inflation rising at its slowest pace since April 2021. While this offers optimism for inflation control efforts, underlying inflationary pressures remain a source of concern for the European Central Bank (ECB). Looking ahead, the expectation is for the base effect and downward momentum to exert downward pressure on inflation. The average inflation rate in the fourth quarter of 2023 is anticipated to be 3.2%, following an average of 5.0% in the third quarter of 2023.
China: In September, the Consumer Price Index (CPI) in China retreated to 0.0% year-on-year, down from 0.1% in August. The core CPI, meanwhile, remained steady at 0.8% year-on-year. The Producer Price Index (PPI) exhibited an increase from -3.0% to -2.5% year-on-year in September. These statistics reveal the dynamics of inflation in China and its broader implications.
In conclusion, the inflation landscapes in the United States, the euro area, and China are multifaceted, subject to various influencing factors. These developments offer a glimpse into the intricate nature of inflation dynamics and the efforts to manage them effectively.
