Another week, another rising inflation print! Last week’s economic data was again dominated by the narrative of rising inflation rates with consumer prices and factory prices around the world rising at their fastest pace in a number of years. US Headline May inflation came in at 5%, the highest since 2008 while Chinese producer prices topped that, rising by 9% – again a 13 year high. Ireland hasn’t been immune to this and our chart of the week shows Irish inflation turning sharply higher, hitting a two year high in May.
The continued acceleration in inflation rates again turned the focus on what the main central banks will do with monetary policy. We’ll hear from the US Fed this week although in our view a taper of its bond purchases is unlikely to happen before September. However, last week we heard from ECB President Christine Lagarde on the subject. In short her guidance was that the ECB would continue on its current monetary policy path, saying that it was “too early” to scale back its bond purchases.
On the domestic front the fallout of the potential corporation tax reform arising out last week’s G7 meeting was spelt out by Minister of Finance Paschal Donohue when he commented that Ireland could lose up to a fifth of its annual corporation tax take as a result of the change. We expect negotiations on possible tax changes to continue before the next stage of the talks at the G20 summit in Venice next month. At this juncture it is difficult to be definitive about the possible impact of corporation tax changes on future foreign direct investment into Ireland given a number of its other key advantages (a young population, well educated English speaking workforce and open access to the EU market) remain very much in place.