Is it too early to relax? AllizanzGI expert explains – Executive Summary

Inflation remains one of the most important issues for capital markets. The news looks promising for 2024, but there are circumstances that could mean it may still be too early to relax.

According to seasonally adjusted data from the European Central Bank, core inflation is now between 2.0 and 2.25% year-on-year, meaning it is back at the regulator’s target level.

However, there is a technical factor at play: changes in basket weights make the annual rate appear lower than it actually is.

“We will not have reliable data on inflation until the beginning of next year,” explains Hans-Jörg Nommer, director of global capital markets and thematic research at Allianz Global Investors (AllianzGI).

Annual inflation rates for non-energy industrial products were negative in November compared to October. Excluding energy and food, inflation was close to zero. The only area where inflation rates are still higher, at around 3%, is the services sector.

In this context, it is also interesting to see that the significant increase in policy interest rates in the Eurozone compared to the United States is disappearing.

“However, it may be too soon for markets to relax again. Our calculations show only limited signs of relief. Our long-term model of US inflation is driven by the economic cycle, short-term disruptions in supply (energy prices), monetary and fiscal policy, And wages, and international trade. “In the short term, inflation in the United States could slow further,” the expert says.

Jörg Nummer also reveals that AllianzGI data shows that inflation will develop between just under 3% (baseline scenario) and more than 4% (scenario with high inflationary pressure) by 2027.

This week, the US and Eurozone central banks will be the dominant players on Wednesday and Thursday respectively.

“They are unlikely to disturb the monetary peace before Christmas again. Both the Fed and the ECB are likely to confirm their course. In the context of the latest rates data, shaping the future path of interest rates will be key.”