11 May 2023
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Inflation in developed markets remains sticky

By Khatija Haque

US CPI came in fractionally lower than expected at 4.9% y/y in April, compared with 5.0% y/y in March.  Core inflation was also slightly slower at 5.5% last month (5.6% y/y in March). Both headline and core inflation rose 0.4% m/m, unchanged from March. Energy and used car prices increased last month, while housing inflation moderated and food prices were flat m/m. While headline CPI has eased signifantly since the start of the year when it stood at 6.4% y/y, core inflation is broadly unchanged. This “stickiness” is the main reason we think it unlikely the Fed will cut rates soon.

Germany’s final CPI reading for April came in in-line with expectations at 0.6% m/m and 7.6% y/y. High eurozone inflation has led several ECB officials to indicate that there is scope for several more rate hikes, likely through the September meeting, although others have indicated the ECB may be nearing the end of its tightening cycle. ECB President Lagarde said yesterday that there were still “significant upside risks” to inflation and that there was still “more ground to cover”. The market is currently pricing almost two more hikes from the ECB in June and July.

Inflation in China slowed to 0.1% y/y in April from 0.7% y/y in March, and was below market forecasts. Inflation is now the slowest in two years. Core CPI was unchanged at 0.7% y/y, indicating that most of the softness was from food and energy prices. Producer inflation declined -3.6% y/y last month. Overall, the data indicates that demand has yet to fully recover from the pandemic, and may allow the central bank to ease monetary policy in the coming weeks to support growth.

Egypt’s CPI inflation came in at 30.6% y/y in April, down from 32.7% the previous month. This was the first dip in annual price growth in nine months as a series of currency moves and supply issues have exerted upwards pressure. Prices were up 1.7% m/m, down from 2.7% in March. However, core inflation remained high at 38.6%, albeit down from the previous print of 39.5%.

Today’s Economic Data and Events

  • 15:00 Bank of England MPC meeting, forecast 0.25% to 4.5%
  • 16:30 US initial jobless claims (6 May) forecast 245k
  • 16:30 US PPI (Apr) forecast 0.3% m/m and 2.5% y/y

Fixed Income

  • The continued slowdown in price pressures in the US helped to push US Treasuries higher overnight. Yields on the 2yr UST fell by 11bps to 3.9098% while the 10yr UST yield fell 8bps to 3.4426%. The drop in the headline CPI to 4.9%, its first time below 5% since April 2021, reaffirms our expectations that the Fed can hold rates steady at upcoming meetings. Markets are still pricing in a lower bias for rates by the end of the year.
  • European bond markets also closed higher overnight. Bund yields dropped 6bps to 2.285% while gilt yields closed lower by 6bps to 3.792%.
  • The UAE’s initial treasury sukuk were highly oversubscribed when issued this year. The 2yr sukuk raised AED 550m at 3.97% while the 3yr raised AED 550m at 3.7%. The government will continue to build out the curve with new maturities.


  • Currency markets popped higher in response to the US April CPI but then faded some of their gains by the end of the day. EURUSD ended the day at 1.0982, up 0.2%, while GBPUSD moved off a sharp spike to close the day at 1.2652, slightly higher. USDJPY moved lower by 0.7% to close at 134.34.
  • In commodity currencies, USDCAD moved lower by about 0.1% to 1.3372 while AUDUSD added 0.3% to 0.6779.



  • US equity markets rallied on Wednesday as investor sentiment and hopes of a pause in interest rate hikes was fueled by slightly better than expected US inflation data for April. The Dow Jones rose 1%, closing at its highest level since June, while the S&P 500 was up 0.5% at the close of trading.  
  • European equity markets ended the day lower on Wednesday on concerns that the ECB may still need to do more to tackle inflation. The Eurostoxx 50 and Dax both fell 0.4%, while the CAC declined by 0.5%. The FTSE 100 also edged lower, falling 0.3%, as investors wait for today’s BoE interest rate decision.
  • The DFM rose marginally on Wednesday, up 0.1%, while the Tadawul in contrast declined by 0.1%.   


  • Oil prices lost some ground overnight giving up some of the gains from a few days of rallies. Brent futures fell by 1.3% to USD 76.41/b while WTI dropped 1.6% to USD 72.56/b. Both benchmarks are moving a little higher in early trading today.
  • Data from the EIA showed a build in overall commercial crude inventories while gasoline and diesel stockpiles fell. US oil production was unchanged at 12.3m b/d.



Written By

Khatija Haque Head of Research & Chief Economist

Edward Bell Head of Market Economics

Jeanne Walters Senior Economist

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