We estimate global core inflation at 2.6% MoM saar and its trend at 2.8% in July 2024 (out of which 0.9% from common component, and 1.9% from country-specific component). For core inflation, both the common component and the country-specific component have moderated but remain higher than pre-Covid. In most countries, the trend of core CPI remains above target, and in some countries (Netherlands, Belgium, U.K., U.S., and Canada) the country-specific trend is either above target or higher than pre-Covid. Notable exceptions are Austria, Denmark, Norway, and South-Korea in which the country-specific trend is lower than pre-Covid. Finally, we estimate global headline inflation at 3.0% MoM saar in July and its trend at 2.9%.
A PDF containing all results (global and each of the 18 countries) can be donwloaded here.
An Excel file containing the data of all charts (global and each of the 18 countries) can be downloaded here.
What the model does
The approach builds on Stock and Watson (2016) “Core Inflation and Trend Inflation”, and on the NY Fed Multivariate Core Trend Inflation model. Specifically, we model the monthly inflation rate of 18 countries as the sum of a persistent and a transitory component. Both persistent and transitory components are further decomposed into common and country-specific subcomponents. Global trend inflation is defined as the aggregate of the persistent components (both common and country-specific) of the different countries, each weighted by their respective share of personal consumption expenditures.
Results
We estimate that in July global core CPI inflation printed at 2.6% MoM saar (Figure 1), a touch below the average of the previous 6 months. We also estimate the trend of global core CPI at 2.8% in July, of which 0.9% from a common factor across countries, and 1.9% coming from country-specific factors (Figure 2). The takeaway is clear: global core CPI inflation has moderated but remains above the 2% target. The run-up in core CPI across countries has been the result of common shocks such as global supply chain issues (which used to be close to zero before Covid) but also of country-specific shocks (i.e. fiscal policy) which account for about 1/3 of the runup of core inflation in 2022.
Figure 1. Global core CPI (MoM saar) and its trend
Note: the figure shows the estimated global core CPI MoM saar (black dotted line), and its trend (solid blue line and bands).
Figure 2. Global core CPI trend and its contributions: common vs country-specific components
Note: the figure shows the estimated trend of global core CPI (black line) together with its contributions: the common component across countries (yellow line) and the country-specific component (blue line).
All other results
If the reader is interested in country-specific results, a PPT containing all charts can be downloaded here.