The year 2022 may end on a slightly more positive note. It will already go down in history as a particularly eventful year, where the various sources of concern have left almost no room for respite. But one of the key elements, inflation, is now showing the first signs of weakening. In the US, the decline in October was steeper than expected, at 7.7% year-on-year, the lowest level since January. In Europe, estimates for November finally point to a break in the upward trend towards new records, with an increase of 10.0% in one year.
Relaxation in fossil fuels
Of course, on both sides of the Atlantic, energy remains the main driver of year-on-year price increases. But in the last two months, the price of a barrel of crude oil has not broken through the
$100 mark. The TTF spot price for gas is also nowhere near the level of this summer, when concerns about winter supplies were at their peak. Only the price for electricity recovered in November to almost 500 euros per megawatt hour on the EPEX spot market. French nuclear power plants undergoing overhaul are slow to come back on line.
Central banks still in the spotlight
The weaker inflation rate has raised questions about a slightly less ambitious pace of rate hikes by central banks. It should be remembered that during the course of this year, the Fed has nevertheless raised its key rate from 0.25% to 4.0%. At the last meeting at the beginning of November, most of the members of the central bank’s committee predicted a slowing down of the pace of increases. With the rate on bank deposits at just 1.5% and inflation higher, the ECB has further to go. But with the eurozone economy on the verge of negative growth, the next hike in December is expected to be 50 basis points (bps) instead of 75 bps.
The reaction to the release of the US employment figures on Friday 2 December showed once again that the elements that can influence central bank policy are being closely monitored. The stronger than expected job creation and lower than expected unemployment rate led to an immediate jump in the US dollar against the euro. A more resilient economy gives the Fed more room to raise rates. The determination of companies to hire is all the more pleasing as borrowing costs have risen sharply. Moreover, consumer confidence according to the Michigan index is still at an all-time low, with the market for private homes stalled, before perhaps turning in favour of buyers. But the dynamism of businesses also means that the danger of a wage-price spiral has not yet been averted.
Despite some concerns that have become less acute, the current situation therefore remains fragile. The war in Ukraine continues. For China, it is to be hoped that the recent outbreak of Covid cases reveals to the Chinese government the impasse it has reached with its policy. The first relaxations seem to be taking place.
PMIs still in recession zone
In the US industry, pessimism remains the order of the day. The PMI is at its lowest level outside the pandemic (47.7 points), in recession territory. Inflation and consumption are cited as the driving factors. And for the services index, contrary to expectations, the score is even lower, at 46.1 points. Both indices are therefore below the 50-point mark, which separates growth from recession. In Europe, according to the PMI, industry is in its fifth consecutive month of contraction (47.1 points). However, this benchmark has gained 0.7 points compared to October. As for services, the PMI index also marks one of the lowest non-pandemic scores since 2013, at 48.6 points. Still showing a decline, the score was at least stable compared to October.
