16 February 2019
Stronger dollar and rising oil prices will lead to higher cost pressure and rising inflation. Photo: Reuters
Stronger dollar and rising oil prices will lead to higher cost pressure and rising inflation. Photo: Reuters

2017 global growth and inflation outlook

As we prepare to bid goodbye to 2016, it’s time to make a prediction of the top 10 macro trends for next year. This week, I will start with global growth outlook and the prospects for commodity prices.

My guess is the global economy will pick up in 2017.

Numerous signs are pointing to this direction. For instance, the purchasing managers’ indexes in several major economies have bottomed out since the second quarter of this year.

The Baltic Dry Index, an indicator of the shipping costs for bulk commodities, surged over three-fold from the low earlier this year, indicating recovering demand.

South Korea, long considered as a reliable bellwether of global trade because its manufacturing sits at the top of production chain, has posted growth for two consecutive months after a 19-month contraction.

It remains unclear how long this economic uptrend will sustain, but it has already exerted inflation pressure on major economies.

The Citi Inflation Surprise Index figures from G10 and emerging markets have started to bottom out since the third and fourth quarter of 2015. In the US, various inflation and consumer price indicators have been trending upward since early this year.

A key factor behind the inflation trend is commodity prices, which are likely to extend the recent uptrend next year.

A more stable global economy, along with expectations of lavish spending by the US on infrastructure, will support higher prices for metals and other materials.

If higher commodity prices and a stronger US dollar happen at the same time, higher inflation is definitely in store, as shown by historical data between 1999 and first half of 2001, as well as between second half of 2005 and first half of 2006.

The dollar-denominated oil price has jumped 13.7 percent since the US election. Because of dollar gains, the rise is even more significant in other currencies.

For example, yen-denominated oil price surged 23.4 percent in the same period, implying the cost pressure is building up.

This article appeared in the Hong Kong Economic Journal on Dec. 8

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal chief economist and strategist

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