More stimulus to come

Core inflation across most developed countries remain well below their respective central bank targets, suggesting that the world continues to suffer from a shortfall in aggregate demand. It is encouraging the core inflation in the United States appears to have bottomed, but the annual rate of 1.7% remains well below the Federal Reserve’s 2% target. Of greater concern is that disinflationary pressures have re-emerged in Europe and Japan, with core inflation growing at annual rates of less than 1% in both countries. Against this backdrop, my expectation is that the European Central Bank and Bank of Japan will have little choice but to deliver more monetary stimulus while the Federal Reserve can be patient in its normalisation of monetary policy. These developments should provide near-term support to risk assets.