Should we now worry about rising inflation?

Consumer price inflation is set to rise sharply in most advanced economies, with the US rate likely to reach around 3% by the middle of this year. However, talk of “global reflation” seems wide of the mark. In many countries, underlying price pressures will continue to be very weak. Most of the increase in headline inflation which is now taking place simply reflects the fact that the slump in energy prices at the beginning of 2016 is now falling out of the annual comparison. A year ago, energy price deflation in the OECD was subtracting one percentage point from the headline inflation rate, but the latest measure of OECD energy inflation, for November 2016, was zero.  Based on our forecast that Brent crude prices will be $60pb at the end of this year, the chart suggests that energy inflation will spike in early 2017 and average around 10% in the year as a whole. The exact profile will vary between countries, but on average this should push headline inflation up by around one percentage point during 2017, because energy typically accounts for 10% of the CPI basket.