Stagflationary impact of energy shock now evident

The plunge in consumer confidence coupled with the rather modest rise in import and producer prices last month seems to suggest that the net impact of the energy cost shock will be deflationary. But consumer confidence isn’t a reliable guide to consumer spending and the inflationary impact of higher energy prices will take much longer to feed through. Barring a renewed escalation in the Middle East, we still expect the Bank of Japan to lift rates at its meeting later this month.