Energy prices are driving inflation higher in Europe and the United States, while Japan is experiencing a slightly negative contribution from energy. This rise in inflation is currently confined to energy, but recent months have seen some pressure on core inflation measures in the euro area and Japan, signaling a trend worth monitoring.
Producer prices in Europe and Japan are under increasing pressure, raising concerns that the energy shock could spill over into other consumer price index (CPI) items. This risk highlights the potential for broader inflationary effects beyond the energy sector.
Short-term market expectations are reflecting this rise in inflation, with swaps pricing in the changes. Long-term inflation expectations, particularly the 5-year, 5-year forward rates, are also rising in Japan and the UK, indicating growing concerns about sustained inflationary pressures.