Goods and services inflation, leading indicators and Latin American GDP
This week's chart covers the following topics:
Monetary policy and inflation trends
This chart highlights the interplay between global monetary policy and inflation trends. Global monetary breadth refers to the share of economies with higher, unchanged or lower policy rates compared to the previous month.
As inflation moderates globally, while remaining elevated, monetary tightening has been subdued, reflecting central banks' cautious approach to navigating economic recovery since the pandemic. At the same time, there has been a noticeable shift towards monetary easing, signaling a potential transition to a more accommodative policy stance.
This pivot may be due to several factors, including the need to support economic growth against the backdrop of global uncertainty and the stabilization of inflation rates closer to targets. Most central banks are currently maintaining policy rates, taking a wait-and-see approach to balance growth and inflation risks.
Services inflation outpacing goods
This comparison of goods vs. services inflation across 20 countries highlights several marked shifts arising from the pandemic. If a cell is highlighted in color, it indicates that in that month, country goods inflation was higher than that of services.
At first, a surge in goods prices reflected supply chain disruptions and a shift towards home-based consumption. However, this trend, from around the beginning of 2021 to mid-2023, was not uniform. Countries facing economic challenges such as Germany and Japan remained in this phase longer than others including the US and Ireland, which exited relatively early.
With the reopening of economies, there has been a reversion to the pre-pandemic norm, in which services inflation outpaced that of goods. Demand for services has resumed, likely due to increased consumer mobility and the rebalancing of spending towards travel, dining and leisure activities. Meanwhile, the stabilization in goods prices suggests an easing of supply chain pressures.
The Sahm rule and US recession risk
The Sahm rule, which focuses on the three-month moving average of the US unemployment rate, underlines the possibility of an upcoming recession. The rule identifies signals related to the start of a recession, when the three-month moving average of the unemployment rate rises by 0.5 percentage points or more relative to its low during the previous 12 months. The proportion of states triggering the Sahm rule is currently over 50 per cent, significantly higher than the historical benchmark of 31 per cent associated with recessions. The concentration of layoffs in sectors such as technology, finance and services amplifies concerns about an economic downturn, reflecting sector-specific vulnerabilities.
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