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LGT Navigator: Central bank week

December 13, 2021

The continued rise in inflation data in the US and Germany to heights not seen in a long time is increasing pressure on central banks on both sides of the Atlantic. Inflation in the US reached its highest level since 1982 and inflation in Germany climbed to its highest level since 1992, just before the Federal Reserve, the ECB, the Bank of Japan, the Bank of England and also the SNB will set their monetary policy stance this week for the last time this year. The reaction on the stock markets suggests that investors have largely priced in the tighter stance of central banks and are expecting inflation to fall again in the medium-term.

Central bank week

In Asia, most stock markets started the new trading week with gains, characterized by numerous central bank decisions. In Tokyo, the 225-share Nikkei index rose by around one percent and in Hong Kong, the Hang Seng index was around +0.4% higher. Thus, the Asian equity exchanges continued the positive guidance from overseas. In New York, the Dow Jones Industrial recorded a daily gain of +0.6% on Friday and closed at 35'970.99 points, with which the leading index could gain about four percent over the week. The broad S&P 500 ended last week with a daily gain of +0.95% at 4'712.02 points. Gains were even more pronounced on the Nasdaq technology exchange, where indexes rose just over one percent. Over the week, the tech indices have thus gained almost four percent.

Inflation in the US at highest level since 1982

In the United States, consumer price data rose +6.8% year-over-year in November, bringing inflation to its highest level in 40 years! However, analysts had expected this development. In the previous month, the inflation rate still noted at +6.2%. On a monthly basis, consumer prices rose by +0.8%, somewhat stronger than expected. The persistently rising inflationary pressure could bring the Federal Reserve increasingly under pressure to accelerate the already launched curtailment of its securities purchase program, or to initiate the turnaround in interest rates earlier than previously thought. Already on Wednesday, the last monetary policy decision of the Federal Reserve this year is pending. Central Bank Chairman Jerome Powell had recently already indicated that the assumption of only “temporarily” high inflation could be shaken.

Rising inflationary pressure weakens purchasing power of German consumers

Inflationary pressure continues to increase in Europe's largest economy. In November, the annual rate of consumer price inflation in Germany reached +5.2%, the highest level since mid-1992 (+5.8%). In October, the inflation rate was still +4.5%. This means that the cost of living is rising and weakening consumers' purchasing power - the backbone of the consumer society. The background to this continues to be energy prices. In Germany, heating oil recorded the strongest seasonal increase, doubling compared with the prior-year period. At the core rate, i.e. excluding energy prices, inflation in November was +3.4%. In Germany, this was compounded by the reversal of the temporary reduction in value-added tax and, since the beginning of 2021, the introduction of the CO2 tax.

Economic Indicators December 13

MEZ Country Indicator Last period
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Source: LGT Bank (Switzerland) Ltd.

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