The key component driving inflation

Two interesting graphs on inflation from Niels Jensen at Absolute Return Partners:

….similarities between the story unfolding in the UK and the one in the US. Core inflation in both countries is significantly higher than it is in the Eurozone – just above 2% in the US and just below 2% in the UK whereas, in the Eurozone, it is only 0.9%. Furthermore, services are very much the engine that drives core inflation in both the UK and the US (exhibit 6).

Exhibit 6: The drivers of core inflation (US only)Source: The Daily Shot, BEA, Bureau of Labor Statistics, Haver Analytics, February 2017. Data as of December 2016

To a very significant degree that is down to rising medical care costs (exhibit 7). As the populace ages, this can only get worse – at least in the US, where almost all healthcare is provided privately and paid for by insurance companies.

Exhibit 7: US personal consumption expenditures by component (%)
Source: The Daily Shot, BEA, Haver Analytics, February 2017

Source: A Note on Inflation: Is it here or isn’t it? – The Absolute Return Letter