Inflation Landscape in Europe Improves

Last Edited by: LPL Research

Last Updated: February 16, 2024

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Jeffrey Roach (00:02):

Hi, I am Jeffrey Roach, chief economist for LPL Financial, with a quick update on what's happening on the international front and a call to action for investors. First, European inflation is improving faster than the U.S. As illustrated in this chart, U.S. core inflation peaked before European counterparts, and moreover, the domestic peak turned out to be lower. But in recent months, things have changed. Pricing pressures in Europe have eased faster than in the U.S. and there could be important investment implications from these new developments. Better inflation dynamics in Europe could bring the European Central Bank to adjust policy earlier than expected with the Fed adjusting later than expected. Second, components of domestic inflation are on different glide paths. So if we've learned anything throughout this cycle, it's that investors must peer beneath the headlines to get a handle on what is actually happening in the economy. The latest CPI print surprised upside, disappointing markets and wasn't exactly what the Fed wanted.

Jeffrey Roach (01:01):

Prices in the services sector is running hotter than the pre-pandemic rate as the economy continues to hum from a strong labor market, and then the subsequent growth in real disposable income. So it's no wonder that services inflation has struggled to decelerate. Here's the call to action. Investors may want to consider investment opportunities outside the U.S. later this year. For example, if the European Central Bank adjusts policy earlier than expected and the Fed adjusts later, investors may find a relative allocation opportunity in markets like these investors benefit from active managers able to accept the variance among global markets. So in short, investors should keep a watchful eye on internationals. If you want more insights on global market trends, follow us on social media and take care.

 

LPL's chief economist, Dr Jeffrey Roach, discusses new developments in international markets.

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