GLOBAL ECONOMY-Not so fast: Inflation may take a while to stir

(Repeats story that ran Friday; no change in text.)

By Ross Finley

Feb 16 (Reuters) - Global inflation is finally on the rise,

the bond market has apparently declared, but the data do not yet

point firmly to that conclusion, suggesting the low trend in

place since the financial crisis may linger for a while.

What the U.S. bond market appears to be reacting to as well

is a different kind of worry: trillions of dollars worth of

extra debt supply to digest from a U.S. administration that has

cast aside fiscal restraint with tax cuts and new spending.

Indeed, for all the optimism about a punchy global economic

upturn in which an exceptionally long list of countries are

expanding at the same time, the two biggest central banks are

due to keep running completely opposing policy this year.

Faced with robust U.S. growth and now a sudden huge amount

of fiscal stimulus in the pipeline, the Federal Reserve is

likely to raise interest rates three times in 2018, with rising

speculation about a fourth hike before the year is over.

But the European Central Bank, trying to generate inflation

out of a euro zone economy that is now booming by any historical

measure, is still pouring on stimulus, buying 30 billion euros

of bonds a month through September at least. It is not likely to

raise interest rates until well into 2019.

Part of that ongoing sharp divergence in policy of course is

because the U.S. economic expansion is more mature. And at 4.1

percent, unemployment is close to the lowest it can go, and so

is more likely to push up inflation through higher pay.

But for two similar consumer-based economies, their core

inflation rates, at least so far, are forecast to also remain

similar and historically very low.

The latest Reuters surveys of private-sector economists,

taken in the past week, show no change to the inflation outlook

across major economies.

Not a single respondent had 3 percent or higher for U.S.

core PCE inflation, the measure the Fed targets at 2 percent,

this year or next. The median for 2019 has been stuck at 2

percent since monthly polling started nine months ago. (reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/econ-polls?RIC=USPCEAP)

Of course, that does not mean there is no chance of a sudden

acceleration nobody foresaw. But several analysts who have

delved deeply into recent U.S. employment data and the prospect

of a surge in wage inflation are recommending calm.

Rabobank has recently run two models on U.S. wage growth,

forecasting it to peak at 3.0 to 3.3 percent in the next two

years, not far above the 2.9 percent reported for January that

triggered so much panic in bond markets a few weeks ago.

The highest median forecast for U.S. wage inflation in

Reuters polls conducted over the past two years is between those

two points, at 3.2 percent.

"While this is higher than current levels, it's on the low

end of the Fed's preferred range of 3 to 4 percent," noted

Rabobank economists Hugo Erken and Stefan Koopman.

"At the same time, these models also show that we're already

getting close to the peak of the economic cycle. This means that

the risks to economic growth, and eventually wage growth and

inflation, are becoming increasingly tilted to the downside."

The current U.S. economic expansion, already 102 months

long, if it lasts another two years as many expect, will be the

longest in more than 150 years. (http://www.nber.org/cycles.html)

Commerzbank (Xetra: CBK100 - news) chief economist Jorg Kramer makes a broader

point explaining why global inflation is likely to remain low.

The main forces that have made modest wage rises and low prices

the norm for a generation aren't about to suddenly fall away.

"Thanks to globalisation, and to an increasing extent

digitalisation, wage growth today is picking up less rapidly in

response to low unemployment," he wrote.

Their research concludes that a 1 percentage point fall in

the U.S. jobless rate only lifts core inflation by 0.1

percentage point, which is "just one-third of the rate we might

have expected before the global financial crisis."

They come to a similar conclusion for the euro zone.

But a handful of others, like Fathom, a London-based

consultancy, are forecasting big changes afoot.

"With (Other OTC: WWTH - news) our own analysis suggesting that most major economies

were already operating above potential by the end of last year,

two more years of substantially above-trend growth will cause

inflation to rise faster than anticipated in many major

economies," wrote Fathom senior economist Brian Davidson.

Fathom has just changed their U.S. view to expect four Fed

rate rises this year and four in 2019, from three and one.

"Our new figures may raise eyebrows, but it is important to

remember that the U.S. is embarking on one of its largest fiscal

expansions since the Second World War, at a time when the

economy is already operating above capacity," he noted.

(Reporting by Ross Finley; Additional reporting by Shaloo

Shrivastava; Editing by Hugh Lawson, Larry King)