Global inflation likely to rise following pick up in world commodity prices

Global inflation is expected to rise in the near term, tracking recent pick up in world commodity prices. This can be expected to reduce the deflation scare further, thereby supporting the market pricing of inflation.

The euro area is expected to witness inflation reaching 1.5 percent in the early half of 2017, which will be the highest since mid-2013, while the headline as well as core inflation in the United Kingdom is expected to rise considerably, especially due to the significant depreciation of the GBP. Weakness in the GBP implies higher import, food and energy prices, Danske Bank reported.

However, the higher rate of inflation shall remain a temporary event, largely driven by fluctuations in global energy prices, while core inflation will remain largely subdued.

Further, Chinese deflationary pressures are also easing. A further increase in PPI inflation in coming months is anticipated as it is being driven mainly by industrial commodity prices and it is expected that these will continue to trend higher on the back of the recovery in Chinese construction.

"In the US, we expect CPI headline inflation to stabilize around 2% next year due to the higher energy prices. CPI core inflation is not expected to move significantly higher as wage growth remains subdued," Danske Bank commented in its latest research report.

Meanwhile, Japan’s inflation has always missed the central bank’s target range. The BoJ's new target should not change expectations much as it is not spelled out how to achieve higher inflation.