Global Navigator | Central banks hold firm as inflation risks re-emerge and oil prices resurge

The Federal Reserve held interest rates steady mid-week, and at the start of the latest reporting period through August 5, the Bank of Japan and European Central Bank followed suit. Analysts at ISI Markets captured the backdrop well:

• “It was a busy week for global monetary policy, but ultimately the world’s central banks opted not to pivot into another inflation-fighting tightening cycle – despite resurgent oil prices and warning signs flashing from both alternative data and the financial markets.” – Ahmet Kaya
• “For decades, consumer technology kept getting cheaper. But the AI supercycle might have brought that phenomenon to an end via ‘chipflation.’ … The Federal Reserve has taken notice, [with its latest meeting] minutes highlighting that AI infrastructure would likely sustain upward pressure on inflation – as tech goods and electricity both get more costly.” – Ana Cuello Franco

Supporting this narrative, CEIC data from Permutable AI showed the 30-day moving average of its Net Inflation Sentiment Score rising sharply during the shadowed window in the chart below. The increase was led by the US, Germany and Italy, as fading hopes for stability in the Persian Gulf and a rebound in oil prices fed inflation-related news coverage.