The downward policy shift of inflation data in the United States and Europe has attracted attention.

　　The recent inflation data of developed economies, represented by the United States and Europe, has dropped significantly, which has advanced the time when the market turns to loose monetary policy. In fact, the economic outlook is full of uncertainty, which also increases the urgency of policy adjustment in the United States and Europe.

　　Inflation in the United States and Europe has dropped significantly.

　　The latest inflation data released by the United States and Europe recently shows that the inflation rate has dropped significantly, and the market believes that the monetary policy shift cycle is coming soon.

　　According to data released by the US Department of Commerce, excluding volatile food and energy prices, the US core personal consumption expenditure (PCE) price index rose by 3.5% year-on-year in October, the smallest year-on-year increase since April 2021.

　　At the same time, the actual personal consumption expenditure announced in October increased by 0.2% month-on-month, higher than the expected 0.1%, and the growth rate slowed down by 0.2 percentage points from last month. After the data was released, the market reaction was relatively dull. According to FedWatch, an interest rate observation tool of CME, the market expects that by May next year, the probability that the Fed will cut interest rates by 25 basis points will be flat at 47%.

　　The inflation rate has dropped significantly this year. The annualized rate of core PCE increased by 2.5% from May to October, which was lower than the 4.5% increase in the previous six months.

　　According to preliminary statistics released by Eurostat, the inflation rate in the euro zone in November was 2.4% at an annual rate, which was lower than 2.9% in October and fell to the lowest level in more than two years.

　　Data show that in November, the prices of food, tobacco and alcohol in the euro zone rose by 6.9% year-on-year, the prices of non-energy industrial products rose by 2.9%, the prices of services rose by 4.0%, and the prices of energy fell by 11.5%. In that month, the core inflation rate excluding the prices of energy, food, tobacco and alcohol was 3.6%.

　　From a country perspective, the inflation rates of Germany, France, Italy and Spain, the major EU economies, were 2.3%, 3.8%, 0.7% and 3.2% respectively in November.

　　According to the latest market survey, it is expected that the European Central Bank will cut interest rates by 25 basis points in April next year, and even the probability of cutting interest rates ahead of March will reach a state of "50-50 split". Just a month ago, the market expected the European Central Bank to cut interest rates as soon as next June. Harvey, head of foreign exchange analysis at Monex Europe, said it was only a matter of time before the European Central Bank officially admitted that its policies were too tight.

　　Anti-inflation related policies or adjustments

　　The Wall Street Journal reported that inflation in developed economies fell faster than expected, marking a turning point for many central banks to fight against soaring prices in the past two years.

　　The report pointed out that the slowdown in inflation in developed economies has strengthened people’s concern that the central bank will "brake" the stimulus policy prematurely and cut interest rates next year. More and more evidence shows that the impact of rising borrowing costs is continuing to emerge.

　　Gerakl, former deputy governor of the Irish central bank, said: "This is definitely a turning point in inflation." "The rate of interest rate cut by the central bank next year may surprise investors, and the rate of interest rate cut may reach 1.5 percentage points."

　　According to incomplete statistics, economists compared with media surveys predicted that 53% of the inflation data in October was lower than expected, including Britain, the euro zone, the United States, Mexico, Australia and other places, and another 25% was in line with expectations. In many countries, the downward trend of energy prices is the main factor driving down inflation. For example, in the euro zone, energy inflation fell by more than 11% for two consecutive months, while in the UK, energy inflation fell to -15.7% in October. Even excluding food and energy, the core annual inflation (excluding food and energy) in many countries is lower than expected, including the United States, Britain, Indonesia and Japan.

　　Preliminary data in November show that this trend is becoming more and more obvious. 78% of the data is lower than the forecast. For example, Italy’s inflation rate unexpectedly dropped to 0.7% in November, far below the European Central Bank’s target level of 2%. In addition, Belgium has experienced deflation for two consecutive months.

　　Reuters quoted Koval, a senior economist in Moody’s analysis, as saying that in the euro zone, people may soon talk about inflation being too low, not too high.

　　Since last year, in the context of inflation exceeding expectations, policy makers have raised inflation forecasts one after another. Take the Bank of England as an example. In many monetary policy reports in the past two years, it has adjusted the average inflation expectation in the last quarter of 2024. In August 2022, this predicted value was 1.4%; In February this year, this forecast was raised to 2.1%; In the latest report in November, this forecast was further raised to 3.4%.

　　The economic situation needs to be improved by policy shift.

　　Poor economic prospects are also the main reason why the industry thinks that the United States and Europe will stop raising interest rates and turn their policies. The demand for promoting consumption and economic recovery in the future is urgent.

　　Economists say that raising interest rates is affecting the economy, dragging down loans and spending. On both sides of the Atlantic, the growth rate of employment is slowing down, and the level of unemployment is rising, thus curbing wage growth. Economists say that households are increasingly reluctant to spend because rising interest rates make saving more favorable. This will put pressure on the economic growth prospects in the coming months.

　　According to the Wall Street Journal, Federal Reserve Chairman Powell said that his policy setting "has gone deep into restricted areas, which means that tight monetary policy" is slowing down economic activity, which is the strongest signal he has sent so far that officials may have decided to end raising interest rates.

　　According to the U.S. Department of Commerce, consumer spending increased by 0.2% in October, a sharp slowdown from the 0.7% increase in September. This is the slowest growth month since May. Economists say that the cooling income growth, high interest rates and prices, the decline in savings during the epidemic period and the resumption of repayment of student loans have all weakened Americans’ ability to maintain the rapid increase in spending as in summer.

　　Specifically, the primary reason affecting consumer spending is the slowdown in the income growth trend of American residents. Due to the slowdown in employment scale growth and the slowdown in salary growth, the growth rate of nominal labor compensation began to decline. In addition, the excess savings accumulated by American residents during the COVID-19 epidemic bottomed out. According to the latest research of the San Francisco Federal Reserve, in the third quarter of 2023, the excess savings may have been exhausted. At present, the savings rate of the residential sector continues to rebound, that is, the marginal propensity to consume declines, which also confirms that the support of excess savings for consumer spending is weakened. The National Retail Federation (NRF) predicts that the growth rate of total retail sales in the United States will slow down to 3%-4% this holiday shopping season, ranging from $957.3 billion to $966.6 billion. This will be the smallest increase since the total retail sales increased by 3.8% in 2019.

　　There is also widespread concern about the real estate industry. Due to the fall in the interest rate of long-term US debt, the interest rate of 30-year fixed mortgage fell to 7.3%, and the number of mortgage applications rebounded slightly at a low level. However, the data of Redfin, a real estate agency in the United States, showed that the housing sales continued to fall in November, and the sales of new homes and existing homes both exceeded expectations.

　　The Wall Street Journal article pointed out that compared with American families, European families are also more reluctant to use their savings during the epidemic. All of this may lead to a more serious recession in the European economy and a sharp drop in inflation rate, prompting Europe to adjust its economic policies earlier.