Getting to inflation's core

Sep 11, 2017

Getting a handle on the inflation outlook is one of the most important calls for investors right now. We introduce our new BlackRock Inflation GPS. The Inflation GPS, which incorporates big data on price trends and a daily-updated “nowcast”, aims to give a read on where core inflation is headed in major economies.


  • The BlackRock Inflation GPS shows the slowdown in U.S. core inflation is likely short-lived and is consistent with monthly data back near a 2% annual rate by early 2018. The eurozone GPS points to core inflation moving sideways.
  • The Phillips curve is alive and well, we believe. The U.S. jobs recovery means slack is no longer weighing on inflation. By contrast, Europe’s recovery has curbed the inflation drag but sizable slack lingers. This suggests a further pick-up in inflation will require ongoing monetary policy help.
  • The story goes beyond slack. Globalisation and technology both play a role. Importantly, we find that U.S. inflation expectations matter a lot and have dragged down core inflation for now.
  • The contrasting inflation pictures for the U.S. and eurozone imply that market participants may be underestimating potential monetary policy divergence.

Our eurozone Inflation GPS suggests that core prices, as reflected in the Harmonised Index of Consumer Prices (HICP), are likely to stay muted and move sideways around current levels at 1.2%-1.3% heading into 2018. The Inflation GPS, in the chart below, helped anticipate the quick inflation recovery that took root in late 2016, led by the text mining mentions on prices and the nowcast’s inputs from PMI business surveys on prices. But that rise is over for now. The ECB remains very far away from hitting its objective for headline inflation of slightly below 2%.

Coming up short
Eurozone Inflation GPS vs. core inflation, 2012-2017

Chart: Eurozone Inflation GPS vs. core inflation

Sources: BlackRock Investment Institute, with data from Thomson Reuters and Eurostat, September 2017.
Notes: This chart shows eurozone core inflation (the Harmonised Index of Consumer Prices excluding food, tobacco and alcohol) and the BlackRock Eurozone Inflation GPS. The GPS shows where core inflation may stand in six months' time.

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Jean Boivin
Head of Economic and Markets Research, BlackRock Investment Institute
Jean Boivin, PhD, Managing Director is Head of Economic and Markets Research at the Blackrock Investment Institute, a global platform which leverages ...
Research team, BlackRock Scientific Active Equity
Head of Economics, BlackRock Global Fixed Income Americas