Advanced economies grew fairly rapidly in the second quarter, with GDP growth likely to have rebounded strongly in the US, Japan and the UK and to have accelerated a little in the euro-zone. This in turn has led to a further reduction in the aggregate unemployment rate in advanced economies. However, there is little sign that wage pressures are rising. What’s more, core inflation has actually fallen in the past few months, particularly in the US. For now, policymakers have focused on the recent positive growth surprises, rather than the negative inflation surprises, and are continuing with, or preparing for, policy normalisation. The US Fed will probably start shrinking its balance sheet in September and the ECB is likely to taper its asset purchases in the first half of 2018.
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