Core inflation likely to rise only gradually

Many advanced economies are close to full employment, but this is likely to lead to only a small increase in price pressures. We expect the core inflation rate to edge up in the euro-zone, Japan and US next year. And if oil prices drop back, as we expect, the headline inflation rate may not pick up at all in the euro-zone or Japan, while in the UK it is likely to decline. The one exception is the US, where both core and headline inflation are set to be above the target by the end of next year as the unemployment rate falls a little further. Against this backdrop, we expect the Fed to raise interest rates four times and the Bank of England three times during 2018, while the ECB will probably end its asset purchases. Only the Bank of Japan is likely to leave its policy settings unchanged. Meanwhile, the average inflation rate in emerging economies is likely to rise a bit, but to remain quite low by past standards.