At a global level, inflation was undershooting national inflation targets by almost 2 percentage points in January 2015.1  Chart 9: International inflation rates over time  Chart 8: Global CPI inflation Global PPP-weighted deviation of CPI inflation from target UK  Per cent  4 3  Higher than 5% Between 1% and 3% Below 0%  Between 3% and 5% Between 0% and 1%  Proportion of countries 100%  2 80%  1 0  60%  -1  40%  -2 2000  2003  2006  2009  2012  20%  -3 2015  0% 1961  Sources: Thomson Reuters Datastream, CEIC and Bank calculations. Notes: Global equates to approximately 70% of world PPP GDP; inflation targets fixed using 2014 targets and PPP-weighted according to share over time. 1  4  1971  1981  1991  2001  2011  Sources: Datastream and Bank calculations. Notes: Sample varies over time. Average sample sizes are: 30 countries between1960 and1980, 55 between 1980 and 2000 and 110 from 2000 onwards. See Carney (2015). BIS central bankers’ speeches  UK CPI inflation has closely followed global CPI trends since the crisis, with their correlation strikingly high at 0.8 – double its level pre-crisis. UK inflation currently stands at 0.3%, its lowest-ever recorded level. According to the MPC’s latest Inflation Report, it is more likely than not the UK will join those countries facing temporary deflation this year.
Indeed, those latter countries have in addition embarked on programmes of asset purchase which might have intensified downward pressures on euro and yen assets. This decoupling of the relative demand and monetary policy positions of the UK and US on the one hand, and the euro-area and Japan on the other, might have on-going implications for exchange rate movements. If these trends continued, they could result in some further appreciation of sterling and the dollar relative to the euro and yen, which would tend to increase disinflationary pressures in the UK and US. Chart 23: IMF output gap estimates and world export prices Percent Percent 6 4 5 3 4 2 3 1 2 1 0 0 -1 -1 -2 -2 -3 -3 -4 -4 2000 2003 2006 2009 2012 2015 2018 Global output gap - UK wtd (rhs) Global output gap - PPP wtd (rhs) World export prices - UK wtd (lhs) Sources: IMF, CEIC, Eurostat, Thomson Reuters Datastream and Bank calculations. Notes: The world export price series shows domestic currency non-oil export prices of goods and services of 49 countries weighted according to their shares in UK imports.