What is Driving Recent Productivity Growth, And Can it Last?

Economic

Summary:

Higher potential growth would justify a shallower easing cycle, as a more prosperous economy might sustain both higher interest rates and wage growth, without sparking inflation.

As Paul Krugman famously stated in 1990, “Productivity isn’t everything, but in the long run it is almost everything.” By boosting productivity, an economy can enhance its standard of living by producing more with the same or fewer resources. In essence, productivity is a key driver of economic prosperity.

Before the pandemic, U.S. productivity growth had been declining since the mid-2000s. However, since late 2022, productivity has been growing at an encouraging rate. The Fed is also taking notice, revising its potential GDP growth assessment upward due to these gains and exploring the factors behind this growth.

The key question remains: is recent growth sustainable?

Productivity is notoriously difficult to explain and measure, and its drivers can take time to become evident. However, we can consider a few theories:

The pandemic caused “creative destruction”

More than 320,000 U.S. businesses permanently shut down in the second quarter of 2020. While these businesses were not necessarily unproductive – just ill-positioned for a pandemic – the ones that came roaring back were likely the strongest of the pack. Per Joseph Schumpeter’s theory of creative destruction, the pandemic may have shifted the economy towards more productive businesses, paving the way for newer, innovative ventures. New business formation surged post-pandemic and remains historically elevated.

The fruits of technological investment—the traditional kind

The U.S. is undoubtedly the tech hub of the world, and while generative AI has captured excitement, it’s unlikely driving productivity gains just yet. Instead, more traditional investments in automation seem responsible. Since 2012, business investment in intellectual property and R&D has steadily increased, and a modernized capital stock can lead to all sorts of new business applications that enhance efficiency over time. Indeed, Dao and Platzer (2024) found that recent productivity gains have been concentrated in high-skill and IT-intensive sectors that saw a surge in digital investment pre-pandemic, further accelerated with the shift to telework.

The AI capex boom suggests further potential. The “Mag 7” tech companies are expected to spend more than $500 billion in capex and R&D next year, before considering adjacent spending on semiconductor designer & manufacturers, data centers, cooling technologies, and energy and utilities. Investments in full AI value chain could reach over $1 trillion by 2030, surpassing the entire U.S. defense budget.

Work-from-home and the Great Reallocation of workers

Post-pandemic job churn suggests increased labor dynamism and job matching, which has boosted output-per-worker in most impacted industries—particularly those incorporating telework.

The true drivers of productivity growth will only become clearer with time. While it may be too soon to credit AI, the timing is fortuitous as capex and innovation underway suggest potential for further acceleration. For the Fed, debate surrounding the drivers and durability of productivity gains will continue to be important in policy deliberations. Higher potential growth would justify a shallower easing cycle, as a more prosperous economy might sustain both higher interest rates and wage growth, without sparking inflation.

Ahead of a potential AI boost, labor productivity growth has been on an encouraging path

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Economic

The Bank of Japan’s Shift Towards Tightening

The BoJ has recently adopted a more austere monetary policy stance, marking a significant departure from its previous efforts to maintain ultra-low interest rates. By raising rates, the central bank aims to temper inflation and align with global trends. However, this strategy is proving problematic in Japan’s unique economic environment.

For one, Japanese households are particularly sensitive to rising interest rates due to the nature of their financial system. Unlike in the U.S., Japanese mortgages are typically recourse loans, meaning borrowers are fully liable for their debts. This system, combined with Japan’s historical experiences of real estate market declines, has instilled a deep-seated financial conservatism among households. Consequently, the BoJ’s rate hikes have triggered widespread concerns about future mortgage costs, deterring consumption and contributing to economic slowdown.

Household Spending: The Core of the Challenge

Household consumption, a key driver of Japan’s economy, has been under significant strain. While wages have risen modestly, they have not kept pace with the rising cost of living, largely driven by higher import prices. As a result, real consumption remains 0.8% below pre-pandemic levels, a stark reminder of the lingering effects of the COVID-19 crisis.

Moreover, households are prioritizing savings over spending, seeking to rebuild financial stability amid uncertain times. This defensive behaviour, while understandable, has far-reaching implications for the economy. Lower consumption dampens demand, which in turn stifles growth and risks a return to deflation—a persistent issue that Japan has struggled to overcome since the 1990s.

The Role of Fiscal Policy: Government Measures to the Rescue

In response to these challenges, the Japanese government has stepped up with ambitious fiscal measures. By the end of 2024, it plans to implement a JPY 21.9 trillion economic stimulus package aimed at countering the risks of deflation and sustaining inflation targets. This marks a stark shift from the austere fiscal policies of previous years under Haruhiko Kuroda’s tenure at the BoJ.

However, the misalignment between fiscal and monetary policies remains a critical issue. While the government is loosening its purse strings to spur growth, the BoJ’s rate hikes risk undermining these efforts. This disconnect underscores a long-standing problem in Japan’s economic policymaking: the difficulty of achieving a harmonious policy mix.

Corporate Investment and Business Sentiment: A Silver Lining?

Despite the challenges facing households, corporate Japan is showing resilience. Large enterprises have increased fixed investment plans, buoyed by optimism about a more robust nominal GDP. The Tankan survey for Q4 reveals steady business sentiment among large manufacturers and non-manufacturers, driven by strong exports and a depreciated yen. However, sectors such as retail, accommodations, and food services are struggling, reflecting weak domestic demand.

The Path Forward: A Balancing Act

Looking ahead, the outlook for 2024 is clouded by forecasts of negative GDP growth. Both domestic and international observers, including the OECD, project a contraction in real GDP, with consumption remaining weak. To counter this, policymakers face mounting pressure to recalibrate their strategies.

With Upper House elections on the horizon, the government is likely to intensify its stimulus efforts. Additional measures may focus on bolstering household incomes, addressing structural wage stagnation, and incentivizing consumption. At the same time, the BoJ will need to reassess its approach to rate hikes to avoid further exacerbating economic vulnerabilities.

Japan’s economic challenges in 2024 reflect a complex interplay of global and domestic factors. While the government’s fiscal measures provide hope, the misalignment with monetary policy poses significant risks. The coming months will be crucial as policymakers strive to navigate this delicate balance and steer the economy away from deflation and stagnation.

For Japan, the road ahead requires not just immediate policy adjustments but also long-term structural reforms to address wage growth, consumption patterns, and demographic challenges. As the world watches, the decisions made in 2024 could shape the nation’s economic trajectory for years to come.

To stay updated on all economic events of today, please check out our Economic calendar

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Economic

In the world of Forex trading, using technical indicators effectively can make the difference between consistent profitability and unpredictable losses. Among the many tools available to traders, one standout oscillator is the Accelerator Oscillator (AO). Developed by Bill Williams, a renowned trader and author, the Accelerator Oscillator helps traders identify changes in momentum, trends, and potential price reversals. This article provides a comprehensive guide on the Accelerator Oscillator, including how it works, how to interpret its signals, and its role in Forex trading strategies.

What is the Accelerator Oscillator?

The Accelerator Oscillator (AO) is a technical analysis tool used to measure the acceleration or deceleration of a market’s momentum. It is derived from the Awesome Oscillator (AO), another popular indicator created by Bill Williams. The AO itself is a momentum indicator that measures market momentum by comparing the difference between the 34-period and 5-period simple moving averages (SMA) of the median price.

While the Awesome Oscillator simply shows momentum, the Accelerator Oscillator takes it a step further by analyzing how the momentum is changing over time. In essence, the Accelerator Oscillator measures the difference between the Awesome Oscillator and its 5-period simple moving average, allowing traders to identify momentum shifts before they become fully apparent in price action.

How Does the Accelerator Oscillator Work?

The Accelerator Oscillator is plotted as a histogram, similar to the Awesome Oscillator. This histogram fluctuates above and below a zero line, showing the strength of momentum and its directional change. Here’s how the AO is calculated:

AO = 5-period SMA of the median price - 34-period SMA of the median price

Acceleration = AO - 5-period SMA of the AO

Where the median price is calculated as: Median Price = (High + Low) / 2

Key Components of the Accelerator Oscillator

The Accelerator Oscillator consists of the following elements:

Histogram Bars: These bars represent the difference between the AO and its 5-period SMA. When the histogram bars are above the zero line, it suggests positive momentum, while bars below the zero line indicate negative momentum.

Zero Line: The zero line serves as a reference point. The movement of the oscillator above or below this line is crucial for identifying shifts in momentum.

Direction of Momentum: The direction and length of the bars provide insights into whether the market momentum is accelerating or decelerating. The larger the bars, the stronger the momentum.

How to Interpret the Accelerator Oscillator

To effectively use the Accelerator Oscillator in Forex trading, you need to understand how to read the histogram and its relationship with price action.

1. Bullish Signals (Buy Signals)

Histogram Bars Above Zero Line: When the histogram bars are above the zero line and increasing in size, it suggests that positive momentum is accelerating. This could be a signal that the current bullish trend is gaining strength.

Zero Line Crossover: A bullish signal occurs when the histogram crosses above the zero line after being below it. This suggests that momentum is shifting from negative to positive.

Green Histogram Bars: Increasingly large green bars indicate that the bullish momentum is not only present but also accelerating. This is an ideal time to consider opening long positions.

2. Bearish Signals (Sell Signals)

Histogram Bars Below Zero Line: When the histogram bars are below the zero line and increasing in size, it indicates that negative momentum is accelerating. This could be a signal that the current bearish trend is strengthening.

Zero Line Crossover: A bearish signal occurs when the histogram crosses below the zero line after being above it. This indicates that momentum is shifting from positive to negative.

Red Histogram Bars: Increasingly large red bars indicate that bearish momentum is accelerating. This may be a good time to consider opening short positions.

3. Divergence Signals

Bullish Divergence: Bullish divergence occurs when the price forms lower lows, but the Accelerator Oscillator forms higher lows. This indicates that while the price is declining, momentum is picking up, suggesting a potential reversal to the upside.

Bearish Divergence: Bearish divergence happens when the price forms higher highs, but the Accelerator Oscillator forms lower highs. This suggests that although the price is rising, momentum is weakening, which may lead to a reversal to the downside.

How to Use the Accelerator Oscillator in Forex Trading

The Accelerator Oscillator can be used in a variety of ways to enhance your trading strategy. Below are some common methods for incorporating the AO into your trading approach:

1. Trend Identification

The Accelerator Oscillator helps identify the direction and strength of the trend. By analyzing the histogram, traders can easily determine whether the market is in a strong uptrend, downtrend, or a period of consolidation. For example:

If the histogram is consistently above the zero line with increasing size, it indicates a strong uptrend.If the histogram is consistently below the zero line with increasing size, it signals a strong downtrend.If the histogram is fluctuating near the zero line with small bars, it indicates a lack of clear trend direction.

2. Momentum Shifts and Reversals

The key strength of the Accelerator Oscillator lies in its ability to spot momentum shifts before they are visible in price action. This makes it a valuable tool for predicting potential reversals. For instance:

A zero-line crossover from below to above suggests that positive momentum is increasing, signaling a potential buying opportunity. A zero-line crossover from above to below indicates that negative momentum is increasing, signaling a potential selling opportunity.

3. Combining with Other Indicators

While the Accelerator Oscillator can be used alone, it works particularly well when combined with other technical indicators. Commonly paired indicators include:

Moving Averages (MA): Moving averages can help confirm the direction of the trend, providing a secondary confirmation of signals generated by the Accelerator Oscillator.

Relative Strength Index (RSI): The RSI helps determine whether an asset is overbought or oversold, adding another layer of analysis to the momentum signals from the AO.

MACD: The Moving Average Convergence Divergence (MACD) is another momentum indicator that complements the Accelerator Oscillator by providing confirmation of trend direction and potential reversals.

4. Risk Management

Like any other technical tool, the Accelerator Oscillator should be used with proper risk management techniques. Here are a few tips:

Use Stop-Loss Orders: Always set stop-loss levels to limit potential losses in case the market moves against your position.

Position Sizing: Adjust your position size based on the strength of the signal. Larger momentum shifts may warrant larger positions, while smaller shifts may require caution.

Diversification: Don't rely solely on the Accelerator Oscillator; combine it with other tools and diversify your trades to reduce risk.

Advantages and Limitations of the Accelerator Oscillator

Advantages:

Early Momentum Detection: The Accelerator Oscillator helps identify momentum changes earlier than price action alone, giving traders a potential edge.

Clear Buy and Sell Signals: The histogram’s movement above or below the zero line provides easy-to-understand signals.

Works Well in Trending Markets: This oscillator excels in identifying trends and momentum, making it a powerful tool during trending conditions.

Limitations:

Less Effective in Sideways Markets: The Accelerator Oscillator can produce false signals in ranging or sideways markets where momentum is weak or unpredictable.

Requires Confirmation: Like any technical indicator, the AO should be confirmed with other indicators and price action to avoid false signals.

Conclusion

The Accelerator Oscillator (AO) is a powerful tool for Forex traders looking to identify momentum changes and anticipate market reversals. By analyzing shifts in momentum, traders can enter trades at more favorable times, increasing their chances of success. However, it’s important to remember that no indicator is perfect. Using the Accelerator Oscillator in combination with other technical analysis tools and practicing sound risk management can help ensure better trading outcomes.

By mastering the Accelerator Oscillator, Forex traders can enhance their ability to identify strong trends, spot reversals early, and make more informed trading decisions, ultimately improving their chances of profitability in the dynamic Forex market.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Economic

What is the Relative Vigor Index (RVI)?

The Relative Vigor Index is a technical indicator that measures the strength of a trend by comparing the closing price of a currency pair to its price range over a specific period. Developed by John Ehlers and Richard W. Schabacker, the RVI is designed to assess the “vigor” or energy behind a price movement. It helps traders determine whether a trend is likely to continue or reverse.

The RVI is based on the concept of the Relative Strength Index (RSI), which measures momentum by comparing upward and downward price changes. However, unlike the RSI, which focuses solely on price changes, the RVI also considers the direction and momentum of the market, making it a more comprehensive tool for analyzing trends.

How the Relative Vigor Index Works

The RVI calculates the strength of a trend by examining the relationship between a currency pair’s close, open, high, and low prices over a given period. The RVI is typically displayed as an oscillator that fluctuates between +100 and -100, with the following key components:

Positive RVI readings: Indicate that the closing price is higher than the opening price, suggesting that bullish momentum is present.

Negative RVI readings: Suggest that the closing price is lower than the opening price, signaling bearish momentum.

The RVI is usually calculated over a 14-period setting, similar to the Relative Strength Index (RSI), although traders can adjust the period to suit their trading strategies. The formula for RVI is as follows:

RVI=(Close−Open)/(High−Low)

A key feature of the RVI is that it uses smoothed averages to eliminate market noise and enhance the clarity of price trends.

Interpreting the Relative Vigor Index in Forex

The Relative Vigor Index is generally used to identify the strength of a trend and potential reversal points. Below are some ways to interpret RVI readings:

1. Overbought and Oversold Conditions

Overbought: When the RVI reaches extreme positive levels (usually above +80), it indicates that the market may be overbought, suggesting that the price may soon reverse or consolidate.

Oversold: Similarly, when the RVI drops below -80, it suggests that the market is oversold, which could signal a potential price reversal.

2. Divergence and Convergence

Divergence occurs when the price of a currency pair moves in the opposite direction of the RVI, which can signal a trend reversal. For example:

Bullish Divergence: When the price of an asset is making lower lows, but the RVI is making higher lows, this suggests that the bearish trend is losing momentum, and a reversal could be imminent.

Bearish Divergence: Conversely, if the price is making higher highs, but the RVI is making lower highs, it suggests that the bullish trend is weakening, and a bearish reversal could be near.

3. Crossovers

Crossovers of the RVI can provide valuable entry and exit signals:

Bullish Crossover: When the RVI crosses above the signal line (a smoothed version of the RVI), it indicates a potential buy signal as the trend turns bullish.

Bearish Crossover: When the RVI crosses below the signal line, it suggests a potential sell signal as the trend turns bearish.

4. Trend Confirmation

Traders often use the RVI to confirm the strength of a trend. A high positive RVI value confirms strong upward momentum, while a low negative RVI value suggests strong downward momentum. Traders can use the RVI in conjunction with other indicators, such as the Moving Average Convergence Divergence (MACD) or Average True Range (ATR), to further validate the strength of the trend.

Advantages of Using the Relative Vigor Index in Forex Trading

Clear Trend Identification: The RVI helps traders clearly identify whether a trend is strong or weak, making it easier to make decisions based on the market’s momentum.

Reduced Market Noise: Since the RVI uses smoothed averages, it reduces the impact of short-term price fluctuations and offers a more stable view of price action.

Versatile: The RVI can be used in various time frames, making it suitable for both short-term and long-term traders. Its ability to identify both overbought and oversold conditions makes it applicable for different trading strategies.

How to Use the Relative Vigor Index in Forex Trading

To effectively use the Relative Vigor Index in Forex trading, traders should consider the following steps:

1. Combine with Other Indicators

While the RVI is a powerful tool, it’s not perfect on its own. Combine it with other indicators, such as the Relative Strength Index (RSI), Moving Average (MA), or Bollinger Bands, to gain a comprehensive view of market conditions. This multi-indicator approach will help you filter out false signals and make more informed decisions.

2. Look for Divergence

As mentioned earlier, divergence between price and the RVI is a strong indication that the current trend may be losing momentum. Watch for these divergences as they can offer early signals of trend reversals.

3. Confirm Entry and Exit Points

Use the RVI to confirm potential entry and exit points for trades. For example, a bullish crossover of the RVI above the signal line can be a confirmation of a potential buy, while a bearish crossover below the signal line can confirm a sell signal.

4. Implement Risk Management

Even though the RVI is an effective tool, no technical indicator is foolproof. Always use risk management strategies, such as stop-loss orders and proper position sizing, to protect your capital.

Conclusion

The Relative Vigor Index (RVI) is an essential tool for Forex traders looking to identify the strength of trends, confirm entry and exit points, and spot potential reversals. By understanding how to use the RVI effectively, you can improve your technical analysis and make more informed trading decisions. However, as with all indicators, it’s crucial to combine the RVI with other tools and implement strong risk management practices to ensure long-term success in the Forex market.

To stay updated on all economic events of today, please check out our Economic calendar

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Economic

In the fast-paced world of forex trading, timing is everything. Successful traders know that being able to predict market movements is key to maximizing profits. One of the most powerful tools at a trader's disposal is the Forex Economic Calendar. It provides a comprehensive list of upcoming economic events that can move the currency markets, including news releases, reports, and indicators that influence global economies.

Understanding how to read and leverage this calendar effectively can help you stay ahead of the curve and make better trading decisions. In this article, we will break down what an economic calendar is, how to read it, and how to use it strategically in your forex trading.

What Is the Forex Economic Calendar?

The Forex Economic Calendar is a scheduled list of upcoming economic events and data releases that can influence currency values. These events include government reports, central bank announcements, geopolitical developments, and other indicators related to inflation, employment, GDP, interest rates, and trade balances.

Economic calendars are provided by many financial platforms and websites, such as Forex Factory, Investing.com, and DailyFX, and are typically categorized by the country or region (e.g., US, UK, Eurozone) and the type of event.

Key Elements of the Economic Calendar

Event

The event refers to the specific news release or economic indicator that will be published. Some of the most important events in forex trading include Non-Farm Payrolls (NFP), Central Bank meetings, GDP reports, inflation data (CPI), and consumer confidence indexes.

Date and Time

Every event on the calendar will be listed with the exact date and time when the data or report is expected to be released. The time is usually given in GMT or the broker’s local time zone.

Currency Impact

Many calendars will show the expected impact of each event on the market. For example, a high-impact event like a Federal Reserve interest rate decision or a Non-Farm Payroll report can cause significant volatility in the forex markets, particularly in USD pairs.

Actual vs. Forecast

In addition to the forecasted figure (or prediction) for a particular event, the calendar will show the "actual" result once the data is released. This comparison is crucial as the market reaction depends on whether the actual result meets, exceeds, or falls short of expectations.

Market Reaction

Some calendars will provide an indication of how previous releases of similar events have affected the market. This helps traders anticipate how the market might react in the future based on historical data.

How to Read the Forex Economic Calendar

Reading the economic calendar is simple, but understanding its implications for forex trading requires a bit more attention to detail. Here’s a step-by-step guide on how to interpret the key components:

Check the Impact Level

Every economic calendar event has an impact level: low, medium, or high. Low-impact events tend to have a minimal effect on the market, while high-impact events (like central bank announcements or major employment reports) can lead to significant price movement. Focus your attention primarily on the high-impact events, as these are the ones that could create trading opportunities.

Monitor Market Expectations

Pay attention to the forecasted data for each event. The market typically reacts based on whether the actual data matches, exceeds, or underperforms relative to these forecasts. For instance, if the US GDP report is expected to show growth of 2% but comes in at only 1.5%, the market could react negatively for the USD.

Follow the Time Zone

Economic reports are often scheduled in different time zones, so it’s essential to adjust the calendar based on your location. Use the time zone converter to ensure you don’t miss important data releases. Some trading platforms will automatically adjust for your local time zone.

Look for Divergence in Data

In certain cases, markets may not react as expected even if the data meets the forecast. This can happen when market participants are already "priced in" the event ahead of time. It’s important to gauge the sentiment of the market in the lead-up to major releases, and the forex economic calendar can give you clues about this.

How to Leverage the Economic Calendar in Forex Trading

The true value of the Forex Economic Calendar is not just in knowing when events will happen, but in using this knowledge to make informed, strategic decisions. Here are several ways to leverage the calendar in your trading:

1. Plan Your Trades Around Key Events

One of the best ways to leverage the calendar is to plan your trades around major economic events. For example, if you know that the European Central Bank is about to announce an interest rate decision, you can adjust your positions accordingly. Many traders will prepare their positions in advance, either by taking profits or placing protective stop-loss orders to manage risk during volatile events.

2. Use Economic Events to Predict Market Volatility

The Forex Economic Calendar is invaluable for predicting periods of increased market volatility. When major reports are released, currency pairs often experience sharp price movements. If you anticipate a significant market reaction, you can adjust your strategy—either by scaling into positions for higher risk and reward or staying out of the market if you're risk-averse.

3. Take Advantage of Pre-Event Moves

In the hours leading up to major events, the market may already begin to move in anticipation of the data. By monitoring the calendar, you can spot trends and price movements that suggest how traders are positioning themselves before the data is even released. This can help you get ahead of the curve and make more informed decisions.

4. Avoid Trading During High-Impact Events

If you’re a more conservative trader, you may prefer to avoid trading altogether during high-impact events. These events often lead to unpredictable price action, which can be both an opportunity and a risk. By staying out of the market during these periods, you can reduce the chances of experiencing large losses due to unexpected market reactions.

5. Consider the Broader Market Context

While the calendar provides a roadmap of upcoming events, it’s essential to consider the broader context of the market. For example, if there’s an ongoing geopolitical crisis or a significant economic downturn, the usual impact of an event may be amplified. Always combine your calendar insights with market sentiment to improve the accuracy of your predictions.

6. Combine with Other Technical and Fundamental Analysis Tools

To get the best results, combine the use of the economic calendar with other tools, such as technical analysis and fundamental analysis. For example, if an important economic report is coming out, you can use chart patterns, trend lines, or support and resistance levels to confirm whether a potential trade aligns with your overall strategy.

Conclusion

The Forex Economic Calendar is an essential tool for every trader. It provides critical insights into upcoming market-moving events, allowing traders to anticipate price movements and plan their strategies accordingly. By understanding how to read and leverage the economic calendar, you can gain a significant edge in the forex market.

However, it’s important to approach the calendar with caution. Economic events often bring volatility, and not every event will have the same impact. By integrating the calendar into your trading plan, staying informed, and using other analysis tools, you can improve your trading results and better manage risk.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Economic

Annual CPI Inflation in November rose to 2.6 per cent from 2.3 per cent in October. The new inflation in the month from October to November 2024 was 0.1 per cent, which combined with the inflation dropping out from the same month of 2023 (0.2 per cent) led to the increase in the headline inflation rate of 0.3 percentage points. The November figure was very much in line with our medium scenario which predicted 2.7 per cent.

Services inflation has remained high at 5.0 per cent. However, goods price inflation has increased to 0.4 per cent, switching from a negative value of -0.3 per cent. This is the first positive value for goods price inflation for over 6 months. Core inflation (CPI excluding food and energy) has also risen for the second month running to 3.5 per cent. The latest ONS data on wages (August to October 2024) shows year-on-year increases of 5.2 per cent, up from 4.8 per cent. There is also some optimism to be taken from the NIESR trimmed mean inflation measure (an alternative measure of core inflation) which has increased slightly to 1.5 per cent. Taken together, these figures indicate that inflationary pressures are still with us: given the additional geopolitical uncertainties, we believe that the Bank of England should hold off further interest rate cuts until inflation is moving back down again to target in 2025. Slow but steady wins the day.

This biggest contributors to the changes in headline inflation between October and November were:

Transport 0.13 percentage points

Recreation and Culture 0.08 percentage points

Clothing and Footwear 0.06 percentage points

Alcohol and Tobacco 0.06 percentage points

Restaurants and Hotels -0.04 percentage points

We can look in more detail at the contributions of the different sectors to overall inflation in Figure 1 below, with the old inflation dropping-out of the annual figure (October-November 2023) shown in blue and the new monthly inflation dropping in (October-November 2024) shown in brown. The overall effect is the sum of the two and is shown as the burgundy line. Overall, if we focus on the brown new inflation, there were seven positive contributions with three positives (and zeros for two). The fact that there was positive “new” inflation across most sectors indicates that inflationary pressures have not gone away.

Overall, the drop ins contributed 0.1 to the increase in inflation, which is quite modest (if maintained over 12 months this would lead to annual inflation of just 1 per cent). The blue drop outs were positive in seven sectors, dominated by transport (again) and negative in three. Overall, the drop outs contributed 0.2 percentage points to the increase in inflation.

Inflation to Remain Above Target Until Mid-2025_1

Looking forward to October 2025

We can look ahead over the next 12 months to see how inflation might evolve as the recent inflation “drops out” as we move forward month by month. Each month, the new inflation enters the annual figure and the old inflation from the same month in the previous year “drops out”. Previously we ended the “low inflation” scenario but have reintroduced it in response to some recent months with near zero month-on-month inflation. We depict the following scenarios for future inflation dropping in:

The “low” scenario assumes inflation each month is equivalent to 1 per cent per annum (0.08 per cent per calendar month).The “medium” scenario assumes that the new inflation each month is equivalent to what would give us 2 per cent per annum or 0.17 per cent per calendar month – which is both the Bank of England’s target and the long-run average for the last 25 years.The “high” scenario assumes that the new inflation each month is equivalent to 3 per cent per annum (0.25 per cent per calendar month).The “very high” scenario assumes that the new inflation each month is equivalent to 5 per cent per annum (0.4 per cent per calendar month). This reflects the inflationary experience of the United Kingdom in 1988-1992 (when mean monthly inflation was 0.45 per cent).

Previously we have followed the “very high” or “high” scenarios. We think that now inflation is likely to come in the “high to medium” range and that the “very high” is less likely (geopolitics notwithstanding – see below). The November figure of 2.6 per cent is as predicted by the low scenario, reflecting the month-on-month figure of 0.1 per cent. If we follow the medium to high scenario, this gives us 2.4 per cent in December (there is a negative contribution from the rise in inflation in December 2023). However, if month-on-month inflation comes in with low or medium figures, the range will be slightly lower at 2.3-2.4 in December.

Note that as we move into 2025, the forecast becomes dominated by the scenario we are following (each scenario comes to rest at its assumed annual rate). The January “bump” will depend on the extent of January sales: if the sales are of a similar magnitude to January 2024, there will be no “bump”. In the forecasts depicted, it is assumed that there is no January sales effect, resulting in the bump upwards as the January 2024 sales drop out. However, because the bump is driven by the drop out, it does not affect the forecast inflation for Feb-May 2025. However, the low, medium and high scenarios all predict falling inflation from February to May 2025. The forecasts then diverge to their underlying scenarios (low at 1 per cent, medium 2 per cent to very high at 5 per cent).

The UK and EU have also intensified sanctions on Russian oil exports (namely the ships involved in the exports). This might lead to a reduction in the world oil supplies that might increase oil prices, particularly if the US follows suit. The US is hard to call, because even if the Biden administration brings in sanctions, the incoming Trump administration may well not implement them. This would increase inflationary pressures in the UK (and the EU and US).

In the Middle East there is a high likelihood of conflict breaking out between Iran and Israel in the coming months, which may well draw in allies of the two countries – including the United States and Russia. Direct involvement of the United Kingdom and EU countries is also possible. The effects of this will be highly significant for inflation as we move forward. The straits of Hormuz would be closed off, restricting oil and liquid natural gas (LNG) supplies to the United Kingdom, Europe and the rest of the world. This will cause an immediate spike in oil and LNG prices and will almost certainly cause a significant increase in energy prices of a similar magnitude to what we saw in 2022. If the war happens, as many expect, then the very-high inflation scenario becomes the most likely trajectory with inflation rising to levels of 4 per cent and above depending on how the war plays out. However, hopefully cooler heads will prevail and allies on both sides will caution restraint as they have a lot to lose if the conflict escalates. Inflation to Remain Above Target Until Mid-2025_2

Inflation to Remain Above Target Until Mid-2025_2

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Brookings Institution

Economic

Tere, a young woman living in an urban neighborhood in western Mexico, dreams of a better future. She completed her secondary education, surpassing her mother and partner’s education, but without child support or affordable childcare, she cannot work or study. Her aspirations are overshadowed by poverty, partner violence, and unpaid care and domestic work. A public food assistance program provides her a basic income, easing the strain of her partner’s irregular income. Yet, despite programs supporting women’s entrepreneurship and job training, Tere remains trapped in a cycle of dependency.

Tere’s story reflects the reality of more than 15 million women in Mexico who face intersecting challenges and remain trapped in systemic inequalities, unable to leverage the tools and promise that formal education has offered for better economic prospects. Over the past two decades, Mexico, a middle-income country, has developed a robust legal and institutional framework for gender equality. Today, gender parity in basic education has been achieved, and women’s enrollment in graduate and postgraduate programs now surpasses men’s. However, the 31% gap between men and women in access to paid work highlights persistent barriers to women’s economic autonomy.

Women’s economic autonomy: A multidimensional construct

Women’s economic autonomy (WEA), defined as a woman’s ability to generate income and have control over financial resources, based on equal access to paid work, is a multidimensional construct that requires a comprehensive policy approach from the State. A mapping of public programs in Mexico revealed 89 public programs at the federal, state, and municipal levels that address at least one aspect of economic autonomy, yet few of these provide a holistic approach that combines multiple components to address intersectional inequalities.

Existing single-component programs fail to address the intersecting barriers that marginalized women like Tere face, leaving many behind. Research highlights the need for tailored, multifaceted interventions to effectively break cycles of poverty and inequality. Additionally, territorial and administrative fragmentation in programs exacerbates challenges for marginalized women, with WEA programs being delivered by multiple agencies across government levels with limited coordination, imposing high transaction costs. Women like Tere must navigate bureaucratic hurdles, transportation costs, and time investments, further limiting their access to economic autonomy opportunities.

The current WEA policy landscape in Mexico reinforces entrenched economic and social inequalities, trapping marginalized women in cycles of poverty, gender-based violence, and unpaid care and domestic work. Addressing these policy limitations is essential to creating inclusive, integrated, and transformative pathways to economic autonomy for all women in Mexico.

Shifting mindsets for transformative policy change

To address these challenges and advance marginalized women’s economic autonomy in Mexico, it is crucial to understand and shift the mental models that will allow systems transformation to tackle inequality, rather than perpetuate it. Particularly uncovering policymakers’ mindsets, their habits of thought, deeply held beliefs, and assumptions about gender equality and WEA and how that influences their relationships, policy responses and practices (Figure 1).

Over the past four months as an Echidna Global Scholar at the Center for Universal Education, I have researched the mindsets of policymakers in economic, education, social, and gender policy in the state of Jalisco, Mexico. Through in-depth interviews with over 20 policymakers, I examined the policymaking process—and the mental models that inform it—to identify ways to better align WEA programs with the needs of marginalized women. My research focused in particular on second-chance education programs, which hold potential to improve marginalized women’s economic autonomy by providing holistic training and mentoring services, along with support networks.

The research showed how policymakers’ mental models relate to WEA policies in four different ways: how they understand the nature of the problem and the solution, and the way they frame women’s role and their own in relation to policy. These mindsets are represented as a Mindset Map (Figure 2) to illustrate the complexity of decision making and the multiple narratives that shape policymakers’ approaches to WEA. The Mindset Map can be used as a tool for navigating the continuum of beliefs and assumptions that policymakers hold with respect to WEA and gender equality in general.

Policymaker mindsets are crucial in shaping WEA policies and the experiences of marginalized women accessing these programs. For example, in relation to the mental model around women’s role in WEA, if a policymaker views women as “receivers” their preferred policy response may focus on providing cash transfers or food aid, addressing only women’s immediate needs but failing to promote economic autonomy. Alternatively, viewing women as “agents” might lead to training programs that tap into their potential, such as building skills. When policymakers position themselves at the extremes of the continuum, they might neglect women like Tere, who face childcare responsibilities with no access to any type of support, and experience gender-based violence, and poverty. To be more effective, WEA policies must recognize the need to both strengthen skills and confront the structural and cultural barriers impeding their progress.

Mindsets can change

The research highlighted that policymakers’ life experiences shape their mental models, which can evolve over time. Some policymakers interviewed shared how personal experiences such as motherhood, social service, travel, training, or experiencing violence and discrimination changed their perspectives. Many also acknowledged that interacting with women facing gender inequalities deeply impacted their understanding. However, most policymakers reported having limited contact with women living in marginalization, such as Tere. This disconnect affects how they perceive the challenges women face, particularly in the context of WEA programs, and can limit the development of more comprehensive policies suitable to address the intersectional barriers women like Tere face.

A key step in expanding the economic autonomy of marginalized women in Mexico is strengthening local ecosystems that address poverty, gender-based violence, and unpaid care work. This requires a collective commitment, particularly from policymakers in the gender, education, and social development sectors, to rethink WEA policy with a shared vision centered on marginalized women. Two key actions are needed: first, implementing holistic, multisectoral programs that align social development, education, and gender programs at the local level, leveraging community infrastructure; and second, strengthening civic participation policies to amplify the voices of women like Tere. Direct engagement with women, including those who have not participated in or have dropped out of WEA, will provide valuable insights to improve policy responses and interventions. By prioritizing marginalized women, we can increase their autonomy and create positive ripple effects for their families and communities, promoting shared prosperity across Mexico.

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How to Use the Relative Vigor Index in Forex Trading

1. Combine with Other Indicators

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How to Read and Leverage The Forex Economic Calendar

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6. Combine with Other Technical and Fundamental Analysis Tools

Conclusion

Inflation to Remain Above Target Until Mid-2025

Looking forward to October 2025

A Path to Shared Prosperity in Mexico

Women’s economic autonomy: A multidimensional construct

Shifting mindsets for transformative policy change

Mindsets can change