In recent months, the huge and rising gap between observed and target inflation has confronted central banks with an urgency to act. It could be called the panic phase of the tightening cycle. What followed was a swift succession of significant rate increases. Tightening was frontloaded, rather than gradual, to avoid an unanchoring of inflation expectations. This perseverance phase will be followed by a long wait-and-see attitude once the terminal rate -the cyclical peak of the policy rate- will have been reached. During this patience phase of the monetary cycle, the central bank will monitor how inflation evolves. With the risk of further rate hikes having declined, the government bond market should stabilize, which can have positive spillovers to other asset classes
Our Pulse shows an improvement in Chinese economic conditions over the period June–August 2022 compared to the previous three months (widening of the blue zone compared to the dotted zone). In fact, the very strict lockdown measures imposed in the spring (in Shanghai in particular) started to be lifted at the end of May, allowing activity to resume. The acceleration in economic growth has remained very gradual. However, it surprised positively in August, both in industry (+4.2% y/y after +3.8% in July and +0.6% in Q2 2022) and in services (+1.8% y/y after +0.6% in July and -3.3% in Q2).
With Gazprom announcing on 2 September that gas deliveries via NordStream1 would be interrupted until further notice due to alleged oil leaks discovered during maintenance work, the increase in deliveries promised by the Russian company via other pipelines (such as those crossing Ukraine) will only marginally compensate for the shutdown of NordStream1. The likelihood of power cuts this winter is increasing even though gas inventories are expected to be replenished in early November.
Inflation in Spain shows no signs of abating. Consumer price inflation remained above 10% y/y in August, at 10.5% (national measure). Although slightly lower when compared to July (10.8% y/y), this decline was mainly due to a fall in private transport costs (-3.5% over one month), the result of lower fuel prices at the pump. Conversely, the increase in food prices (and non-alcoholic beverages) accelerated, by 0.3 of a point to 13.8% y/y, with increases seen in dairy products, bread, and corn. The underlying measure (which excludes energy and perishable foods) also rose, from 6.1% y/y to 6.4% y/y. Prices also continue to be very dynamic in the property sector.
The downward trend in the number of new COVID-19 cases has continued worldwide for the seventh consecutive week. 3.6 million cases were reported between 6 and 12 September, down 16% from the previous week (Chart 1). Overall, the situation is continuing to improve noticeably in South America (-33%), North America (-20%) and Asia (-18%), but it has stabilised in Europe after falling for eight weeks. In Africa, the number of cases fell again (-12%) after rising slightly during the previous week. Meanwhile, vaccination campaigns are continuing to progress worldwide, but at a much slower pace. Sixty-eight percent of the world’s population has received at least one dose of a vaccine (Chart 2).
