Although the inflation data last week was softer than expected, US CPI is still reverberating and has not materially changed higher-for-longer messaging from Federal Reserve officials. Fed Governor Waller today reiterated there is still a long way to go before concluding interest rate hikes, noting rates will stay high until inflation is closer to the 2% target.

Likewise, central bank officials from the ECB and some BoE members have also played the notion of peak inflation in Europe, however market rates expectations have moderated somewhat as the possibility of lower US terminal rates feed through to Europe.

This Wednesday the UK will publish October inflation data and economists expect it to mark the peak of the cycle, although we shall be monitoring this closely. It is forecast that the annual pace of consumer prices will have accelerated to 10.8% in October (up from 10.1% in September) and this being caused largely by energy prices, as the government energy price guarantee only partially capped increases in utility bills. However, underlying inflation is still tipped to ease, mostly due to base effects, and recall that the Bank of England forecast a peak in inflation at ~11% in Q4 2022, expecting it to start falling back in early 2023 – again, something to watch closely.

Staying in the UK, Chancellor Hunt gave a series of interviews ahead of Thursday’s Autumn Statement to flag tighter fiscal policy. He stated it would be necessary to increase taxes and cut spending in order to restore financial credibility and that everyone would have to pay more taxes. That being said, The Telegraph has reported the Chancellor is planning a one-off payment to support pensioners and low-income households when energy support ends next April.

Understandably a lot has been written about the likely policy, over the last month, with most of the fiscal consolidation coming via a freeze or lowering of personal tax allowances and this will be critically assessed once more is known at the end of the week.
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