The November Inflation Report is notably more dovish than its August predecessor, mainly reflecting increased MPC concern about slowing emerging economies. The change in tone probably also reflects a desire to minimise upward pressure on sterling should the ECB ease policy further in December.

The change in the MPC’s collective opinion is summarised by the two-year-ahead mean inflation forecast based on unchanged policy, which has been cut from 2.6% in August to 2.3% in November, returning it to its level in May. The implication is that a rate rise is no more urgent now than it was in May.

The 2.6% August forecast chimed with Governor Carney’s July statement that a decision to raise rates would “come into sharper relief around the turn of this year”, i.e. five months later. The November cut in the forecast suggests that a rise is still at least five months away, i.e. next spring at the earliest.

The view here, based on monetary trends, is that global and domestic economic prospects are stronger than the MPC judges. If correct, incoming news should shift the Committee in a hawkish direction by the time of the February Inflation Report.

An additional significant announcement today was new “guidance” that the MPC expects to maintain the stock of asset purchases at £375 billion until Bank rate returns to around 2%. This increases the risk of an abrupt rise in rates since the alternative policy tightening option of early asset sales is no longer available.

It is widely recognised that current low global consumer price inflation reflects a temporary drag from weak commodity prices. Much commentary, however, asserts that “core” inflation is also unusually subdued. Not so.

The first chart below shows headline and core inflation aggregates for the G7 countries and seven large emerging economies (the “E7”). The core definition varies slightly across countries but in most cases excludes all food and energy items*. The country data were aggregated using GDP weights.

G7 plus E7 headline CPI inflation was 1.7% in September, equal to a low reached in January and the least since October 2009. Core inflation, by contrast, rose to 2.7%, the highest since September 2008.

The elevated core rate mainly reflects E7 strength – second chart. The E7 aggregate has been driven up by surges in core inflation in Russia and Brazil, caused by currency collapses – current core rates are 9.1% and 16.6% respectively. In addition, however, G7 core inflation has been drifting higher and is slightly above its average over the past 10 years – 1.5% versus 1.4%.

Lower commodity input costs and cheaper manufactured imports from weak-currency emerging economies have been pulling down on the G7 core rate, so the observed rise indicates a pick-up in domestic inflationary pressures. G7 labour markets are now relatively tight, with the unemployment rate down by a further 0.6 percentage points to 5.8% over the past 12 months – equal to its level in mid-2006 when G7 core inflation was also rising.

With monetary trends suggesting improving global and E7 economic prospects, commodity prices and E7 currencies may stabilise or recover.  If so, G7 core inflation is likely to continue to move higher, while the E7 core rate should moderate as imported price rises slow.

*Japan: additionally excludes impact of 2014 sales tax rise. Brazil: includes some food items. India: includes vehicle fuel, excludes additional items. Russia: includes some food items, excludes additional items.