Has global inflation reached an inflection point?

Figure 1 plots for developed markets the inflation rate and 12-month cumulated forecast errors of the Bloomberg consensus, both weighted by GDP, while Figure 2 charts the same for emerging markets.

The 12-month summed forecast errors remain negative, but have closed towards zero rapidly as monthly aggregated forecast errors have been positive in three of the last five months, globally and in each subaggregate.

The turn higher in both inflation and inflation surprises has been remarkably widespread and correlated across countries. Figure 3 plots the average correlation of inflation surprises in individual economies with the GDP-weighted global aggregate of inflation surprises, for the world as a whole and for subsets of economies.

These correlations have increased everywhere – except the euro area, where inflation continues to undershoot expectation – as inflation surprises have turned positive in most economies.

While there are some individual exceptions, the uniformity of the turn in inflation and its surprises relative to analyst forecasts suggest that global inflation may have reached a turning point.

That supposition – and here is a warning for central bankers – is supported by statistical analysis: monthly inflation errors are Granger causally prior to inflation, with a three-to-four month lead; that is, recent positive forecast errors statistically imply a further acceleration in inflation over the next quarter or more