1. USA - highest core inflation since 1982

CPI (Consumer Price Index): 8.1%, interest rate 3-3.25%, next release Nov. 10.

The world's largest economy reported overall inflation of 8.1% year-over-year in September and, more importantly, core inflation of 6.6% year-over-year. This is the highest level in 40 years and more than triple the Federal Reserve's 2% target.

It also shows that the Federal Reserve's efforts to contain inflation have not yet been successful. After the release of the consumer price index on October 13, markets were expecting the Fed to raise interest rates by 75 basis points for a fourth time in November. The odds of another 75 basis point hike in December have also increased.

2. japan

Consumer Price Index 3%, Interest Rate -0.10%. Japan is the outlier among developed countries - clinging to negative interest rates while the whole world is raising rates. That's why the yen is so weak, and intervention has failed to boost the currency.

The yen can only rise if inflation - perhaps from imported goods - drives it. This would allow the Bank of Japan to end its ultra-loose monetary policy. With core inflation barely 2% and headline inflation at the low end of peer countries, a significant increase is required.

3. euro zone double digits

Consumer price index 10%, interest rate 1.25%, next preliminary release on October 31.

Blaming the number on Putin, Vladimir Vladimirovich, is probably the right thing to do. While employment is high and wages are rising, core inflation in Europe is only 4.8%, while the consumer price index is 10%. High energy costs are the main reason for the price increase, and they will continue to weigh on the economy.

This means that the ECB can only raise interest rates to a limited extent. The ECB is expected to raise rates by 75 basis points on Oct. 27, but will likely slow down after that. The ECB witd look for any upward trend to warrant larger moves in December and raise the ceiling on the final rate.

4. Great Britain suffers from the worst of all worlds

Consumer price index 9.9%, interest rate 2.25%.

Like Europe, the UK is suffering from high energy prices, exacerbated by low gas storage capacity. This pushed headline inflation up to 9.9% in August, but the September report pushed it back above 10%. Core inflation is also a problem at 6.3%.

High prices will prompt the Bank of England to raise interest rates sharply, probably by 75 basis points on Nov. 3. But it could also be higher if the government doesn't get its act together and cut costs.

The U.K.'s volatile political environment and market sensitivity to debt, as if it were an emerging market, don't mean inflation reports won't have an impact on the pound. On the contrary - amid the chaos, the BOE may stick to inflation as the sole driver of policy and turn away from the political imbroglio.

5. Switzerland is fed up with (low) inflation

PI 3.3%, interest rate 0.50%.

Switzerland is relatively immune to the rising energy costs that have gripped the old continent, and high wages in the wealthy nation mean they have limited room to rise. Moreover, the mountainous country has struggled to avoid deflation, so inflation has barely caught up.

Nevertheless, the Swiss National Bank has guided interest rates out of negative territory and appears intent on continuing to do so - even as inflation eases, as evidenced by the latest report, which showed monthly inflation falling 0.2%. Further rate hikes are likely, and the franc is sensitive to the next CPI report.

6. Canada lags behind the U.S., home prices suffer

Consumer price index 7%, interest rate 3.25%.

It took more than a decade, but predictions of a Canadian housing bubble bursting have finally come true. The negative housing price data somewhat overshadows the 7% annual inflation rate and 5.6% core inflation index, both more than 1% lower than the U.S.

Nevertheless, any increase in prices - due to U.S. imported goods or other costs - will likely lead to interest rate hikes by the Bank of Canada and shocks to the Canadian dollar. The BoC raised borrowing costs by 100 basis points in July, shocking world opinion, and is on track for a slowdown. The pace of that slowdown depends on inflation.

7th Australia leads, this time Down Under

Consumer Price Index 6.1%, interest rate 2.60%.

Australia appears to be leading the way in exiting the tightening cycle. The country surprised last month by raising interest rates by just 25 basis points - but that should not have been a surprise. The Reserve Bank of Australia had already signaled that it would taper monetary policy, and for good reasons.

Inflation is only 6.1%, lower than in the U.S., Europe and the UK. Since Australia publishes CPI figures only once a quarter, the data to be released on October 26 will be crucial. They could show a renewed rise in prices and change the RBA's mind. The Australian inflation figures could cause considerable volatility.

8. new Zealand inspires

PI 7.2%, interest rate 3.50%.

New Zealand is facing faster inflation - data released on October 18 showed price increases accelerating more than expected. However, similar to Australia, inflation data is only released once a quarter. This means that the latest CPI report is likely to support the kiwi for some time to come.

The RBNZ had been eyeing major rate hikes even before the last one, and the prospects of crossing the 4% mark have risen significantly following the data. The kiwi should continue to outperform its peers. Final thoughts

Inflation has become more important to markets in 2022 and is likely to play an important role through the end of the first quarter of 2023 or beyond. Any change in the consumer price index will have a significant impact on currency valuations

State of the individual currencies and inflation values of the major economies

In the face of rising costs and rising interest rates, every release matters for currencies. Here's where inflation and currencies stand in a busy week.

Employment and growth numbers have taken a back seat to inflation data in the U.S. and around the world. The re-emergence of price increases and the associated interest rate hikes - a paradigm shift - have put the release of the Consumer Price Index at the top of currency traders' agendas.

Here's a look at the state of inflation in major economies.

inside-alternavest.article.publishedAt 21.10.2022
inside-alternavest.article.on Alternavest.com