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					                                                                                                                            29 January 2013
                                                                                                                        Economics Research
                                                                                                  http://www.credit-suisse.com/researchandanalytics




                                                            Global Inflation Watch
                                                            Economics Research



                                   Research Analysts        Inflation! Wherefore art thou, inflation?
                              Economic Research Team        In the short term, we expect a quite marked fall in inflation rates across
         (for full contact details, see inside back page)   the developed world, because of base effects from last year’s sharp increase
                                                            in oil prices. These will likely push US inflation as low as 1.2% in April (from
                                                            1.7% in December) and the euro area HICP inflation to 1.5% (from 2.2% in
                                                            December). Changes in last year’s indirect taxes will also play an important role
                                                            in the euro area, though. In the UK, following a small increase in inflation rates
                                                            closer to 3%, the latter is likely to fall to 2.5% in the same months.
                                                            Japan, on the other hand, is likely to see some upside pressures to prices
                                                            in coming months. The recent currency depreciation may lead to some
                                                            acceleration of non-durable prices. Furthermore, the monetary and fiscal policy
                                                            innovations make us believe in a gradual easing of deflationary pressures in line
                                                            with a narrowing of the economy's negative output gap.
                                                            In the EM space, overall inflationary pressures should be modestly on the
                                                            rise, principally driven by non-Japan Asia (China) and Latam rates. Overall,
                                                            though, projections for global inflation remain stable, with global inflation
                                                            averaging 3% for most of this year, in our view.
Table of Contents                                           In the last few years, major central banks across the developed world
Global                                                2     have consistently missed their inflation targets. And, according to the latest
                                                            projections for inflation of the same central banks, targets are likely to be
US                                                    7
                                                            missed for a while longer.
Canada                                               14
                                                            In the most recent period, inflation and inflation expectations have re-
The euro area                                        15     entered the monetary policy debate across the globe, and a few
UK                                                   18     innovations in the policy framework were delivered. In the current
Japan                                                23     environment of unsatisfactory growth and low and stable inflation, central banks
                                                            are looking to revamp their policy strategy and adapt it to what seems to be a
EM                                                   27
                                                            nascent new paradigm. The financial crisis and the following period seem to
Non-Japan Asia                                       36     have exposed the inadequacy of the current monetary policy framework –
EEMEA                                                41     inflation targeting, in place for nearly a quarter of a century.
Latin America                                        49     Official inflation (and growth) projections and the push towards
                                                            (reflationary) policy innovations should put some pressures to inflation
Calendar & Forecasts                                 56
                                                            expectations, all else being equal. So far though, expectations have not
                                                            reacted. The amount of spare capacity, in the developed world in particular, is
                                                            still outweighing inflationary concerns coming from an (already) extraordinary
                                                            expansive monetary policy.
                                                            In the short term, we share the view that inflationary pressures are likely
                                                            to be muted. But, in the longer run, the persistence of extraordinary monetary
                                                            policy expansion, coupled with changes in the policy framework, should start to
                                                            be embedded in expectations for future (higher) inflationary pressures.



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                                                                                                                                    29 January 2013




                                                 Global: Great expectations
                        Violante Di Canossa      Short-term outlook of global inflation
                          +44 20 7883 4192
          violante.dicanossa@credit-suisse.com   In the developed world, inflation is likely to drift lower in the short term. The key
                                                 driver is base effects from last year’s sharp increase in oil prices. In the US, we think CPI
                                                 inflation is likely to fall to 1.2% by April (from 1.7% in December). Euro area HICP inflation
                                                 should print a 1.5% reading in the same month, according to our projections, down from
                                                 2.2% at the end of last year. In the euro area, base effects from last year’s changes in
                                                 indirect taxes should also support the relative sharp and rapid fall in inflation rates.
                                                 Japanese inflation, on the other hand, is likely to behave differently and we see
                                                 some upside risks to Japanese prices. The recent currency depreciation may lead to
                                                 some acceleration of non-durable prices in the coming few months. Furthermore, the
                                                 monetary and fiscal policy innovations of the most recent period make us believe in a
                                                 gradual easing of deflationary pressures in line with a narrowing of the economy's negative
                                                 output gap, which we expect to turn neutral by Q2.
                                                 In the EM space, overall inflationary pressures should be modestly on the rise,
                                                 principally driven by non-Japan Asia (China) and Latam CPIs. In non-Japan Asia, headline
                                                 CPI rose to 3.2% last month from 3.0%. This partly reflected the fact that food prices in
                                                 China rose, driven by the particularly cold winter in China. More broadly, we think that 2013
                                                 inflation in China will turn higher this year, before easing off in 2014. In the Latam region a
                                                 combination of strong economic performance in some countries coupled with currency
                                                 depreciation in others is likely to push CPI inflation to its highest rate since 2003, at around
                                                 10% by the end of the forecasting period from below 8% in the last months of 2012.

 Exhibit 1: DM inflation                                                          Exhibit 2: EM inflation
 CPI, y/y%                                                                        CPI, y/y%

                                                                                  16                                LATAM
                                                                          CS                                        EEMEA                  CS
  4                                                                      fcts     14                                Emerging Asia
                                                                                                                    EM                     fcts
                                                                                  12
  3
                                                                                  10

  2                                                                                 8

                                                                                    6
  1                                                                                 4

                                                                                    2
  0
                                                                                    0

 -1                                                                                -2
      00 01 02 03 04 05 06 07 08 09 10 11 12 13                                         00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
 Source: Credit Suisse                                                            Source: Credit Suisse




Global Inflation Watch                                                                                                                            2
                                                                                                         29 January 2013



                         Policy innovations and inflation expectations
                         In the most recent period, inflation and inflation expectations have re-entered the
                         monetary policy debate across the globe, and a few innovations in the policy
                         framework were delivered. In the current environment of unsatisfactory growth and low
                         and stable inflation, central banks are looking to revamp their policy strategy and adapt it
                         to what seems to be a nascent new paradigm. The financial crisis and the following period
                         seem to have exposed the inadequacy of the current monetary policy framework – inflation
                         targeting, in place for nearly a quarter of a century. So much so that some scholars have
                         pushed the argument to the limit, announcing its “death”1.
                         Under the guidance of Chairman Bernanke, the FOMC has taken unprecedented steps
                         in terms of its communication strategy, lastly adopting an inflation target. The
                         December statement announced specifying economic conditions necessary to maintain an
                         “exceptionally low” fed funds rate target: an unemployment rate above 6.5%, 2.5% or
                         lower one- to two-year ahead inflation projections and well-anchored longer-term inflation
                         expectations. As we noted before, the new communication strategy of the Fed appears to
                         leave room for maneuver and these conditions certainly should not be interpreted as
                         triggers for automatic policy tightening. Chairman Bernanke used the term “guideposts”,
                         not targets or triggers.
                         Beyond the problems associated with an unemployment rate threshold or “guidepost”, the
                         inflation outlook threshold also raises serious questions, such as credibility issues
                         (Bernanke confirmed that the one- to two-year inflation projections to be used are the
                         FOMC’s own forecasts) and the difficulty in correctly defining and measuring
                         inflation expectations (see from page 9 for a detailed discussion of US measures of
                         inflation expectations).
                         In Japan, we saw the first act of “Abenomics” last week. The BoJ announced that it
                         was embracing PM Abe’s 2% inflation target – a more aggressive goal than the previous
                         1% – to be achieved “at the earliest possible time”. The announcement, however, was not
                         followed by further monetary stimulus, with some disappointment by market participants.
                         That said, beyond this month’s innovations, question marks on the policy front remain. The
                         new governor – to start in April, is likely to be more aligned alongside Abe’s positions; and
                         H2 may see some revisions of the Bank of Japan Act (for more details, see Japan
                         Economic Analysis Issue No. 35).
                         In the UK, next BoE Governor Carney has started a debate about which economic
                         variable a central bank should target. In a speech in December he drew attention to the
                         policy of nominal GDP targeting, as well as other non-conventional techniques that central
                         banks could employ. These comments, in conjunction with the fact that he was a surprise
                         choice for BoE governor (and an outsider from the Bank) have raised expectations that
                         his appointment may be used to alter in some way the current mandate of the BoE.
                         Potential changes range from, at one extreme, a move to nominal GDP targeting, to
                         altering the current inflation target onto a wider band (for example 1%-4% for CPI). Such
                         policies would likely lead to higher inflation rates in the medium term, and so could have a
                         marked impact on inflation linked markets (for more details, see UK Economics: Monetary
                         policy regime change).
                         In the last few years, major central banks across the developed world have
                         consistently missed their inflation targets, being an officially declared one or not. And,
                         according to the latest projections for inflation from the same central banks, targets are
                         likely to be missed for a while longer. In the charts below we display the four major
                         central banks inflation targets and their own inflation projections in the medium term. With
                         the exception of the BoE – for which some cautions should be used given the track record
                         – the Fed, the BoJ and the ECB are all estimating inflation well below their respective
                         targets in the medium term.



                         1   "The death of inflation targeting", by J. Frankel, June 2012.



Global Inflation Watch                                                                                                3
                                                                                                                                                                  29 January 2013




 Exhibit 3: Inflation, its target and central bank’s
 projections in the US…                                                                Exhibit 4: … in Japan
 PCE y/y%                                                                              CPI ex fresh food, y/y%

 3.0                                                             FOMC Central            3
                                                                  Tendencies
         FOMC inflation                                            Q4/Q4%                2
         threshold
 2.5
                                                                                                                                                   BoJ inflation target
                                                                                         1


 2.0                                                            '13 '14 '15              0
                             FOMC longer                                      Longer
                               run goal                   '12                  Run
                                                                                                                                                                      BoJ 2013-
                                                                                         -1
                                                                                                                                                                            2014
 1.5                                                                                                                                                                    inflation
                                                                                         -2                                                                          projections


 1.0                                                                                     -3
  Jan 2010          Jan 2011          Jan 2012                                                00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
 Source: Thomson Reuters DataStream, Fed, Credit Suisse                                Source: Thomson Reuters DataStream, BoJ, Credit Suisse




 Exhibit 5: … in the euro area                                                         Exhibit 6: …and in the UK
 Euro area HICP, y/y%                                                                  RPIX, y/y% until Nov 2003, then CPI, y/y%

                                                                                       5.5
  4.0                                                                                  5.0
                                                                                       4.5
  3.0
                                                                                       4.0
                                                                                                                                                                       BoE Nov
                                                                                       3.5
  2.0                                                                                                                                                                   inflation
                                                                                       3.0                                                                           projections
              ECB inflation target
                                                                                       2.5
  1.0
                                                                      ECB 2013 &
                                                                     2014 inflation    2.0
                                                                                                                                                           BoE inflation
                                                                       projections     1.5
  0.0                                                                                                                                                      target
                                                                                       1.0
 -1.0                                                                                  0.5
        00 01 02 03 04 05 06 07 08 09 10 11 12 13 14                                          00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
 Source: Thomson Reuters DataStream, ECB, Credit Suisse                                Note: BoE inflation projections based on interest rates constant at 0.50% and £375 billion
                                                                                       asset purchases

                                                                                       Source: Thomson Reuters DataStream, BoE, Credit Suisse



                                              Official inflation (and growth) projections and the push towards (reflationary) policy
                                              innovations should put some pressures on inflation expectations, calling for a further
                                              generalized increased in monetary policy stimulus, all else being equal. So far though,
                                              expectations have not reacted: further actions by central banks will probably have to follow
                                              before they start to change accordingly. The amount of spare capacity, in the developed
                                              world in particular, is still outweighing inflationary concerns coming from an (already)
                                              extraordinary expansive monetary policy.




Global Inflation Watch                                                                                                                                                              4
                                                                                                                                   29 January 2013



                                              Indeed, since last time we looked at inflation expectations in the developed world
                                              (October’s Global Inflation Watch), the picture has not changed much. In the US, 1 year
                                              inflation expectations as reported by the University of Michigan Consumer Sentiment
                                              Survey recorded a small uptick in January to 3.4% from 3.2%, while the long-term inflation
                                              expectations measure was stable at just below 3%, as in the last five months. And as we
                                              discuss in the US section, other survey measures of expectations portray a similar picture.
                                              In Japan, the absence of a reliable measure for inflation expectation blurs the picture, but
                                              the proxy we use (the weighted-average inflation rate calculated from the consumer
                                              sentiment survey, as shown in Exhibit 8) has, if anything, declined somewhat in the most
                                              recent months. It is important to note, however, that the latest survey would have been
                                              conducted around December 15, meaning that the impact (if any) of subsequent yen
                                              depreciation and the Abe administration's announcements of various “anti-deflation”
                                              measures will not become apparent until the January survey.
                                              Finally, the picture is not different in Europe. There, expectations for inflation in 12 months’
                                              time remain off their recent local peak.

 Exhibit 7: Inflation expectations in the US…                                  Exhibit 8: …in Japan
 University of Michigan consumer survey inflation expectations, %              Weight average inflation expectation, %

                                                                               4

   5

                                                                               3
   4


                                                                               2
   3



   2                                                                           1
                                            1 year
                                            5 year
   1                                                                           0
       00 01 02 03 04 05 06 07 08 09 10 11 12 13                                   04       05         06   07      08   09   10   11     12
 Source: Thomson Reuters DataStream, Credit Suisse                             Source: Credit Suisse



                                              Market-based indicators of inflation expectations also portray a subdued picture for
                                              inflation in the future. Five-year breakeven inflation rates remain well anchored across
                                              the board, pricing in very little in terms of inflationary pressures, as shown in the charts
                                              below. The same, as we discuss in the US section, can be said about five-year five-year
                                              forward breakeven rates.




Global Inflation Watch                                                                                                                          5
                                                                                                                                          29 January 2013




 Exhibit 9: Markets’ inflation expectations in the US                       Exhibit 10: … and in Europe
 US 5-year breakeven inflation rates at constant maturity                   UK 5-year breakeven inflation rates at constant maturity adjusted for CPAC. The
                                                                            euro area is the average of French 5-year B/E at constant maturity and euro
                                                                            area HICP swaps rates

                                                                             4
    3

                                                                             3
    2

    1                                                                        2

    0
                                                                             1                      UK
   -1                                                                                               Euro area

                                                                             0
   -2


   -3                                                                        -1
        05      06       07       08       09        10     11   12   13          05      06        07        08         09   10    11      12       13
 Source: Thomson Reuters DataStream, Credit Suisse                          Source: Credit Suisse Locus, Credit Suisse



                                              In the short term, we share the view that inflationary pressures are likely to be
                                              muted. Weak economic conditions are likely to have the upper hand, gently pushing
                                              inflation down from where it is running at the moment. That said, in the medium to longer
                                              run, the persistence of extraordinary monetary policy expansion, coupled with changes in
                                              the policy framework, should start to be embedded in expectations for future (higher)
                                              inflationary pressures, in our view.




Global Inflation Watch                                                                                                                                    6
                                                                                                                                      29 January 2013




                                                     US Inflation: Great expectations for benign price growth
                               Jay Feldman
                                                     Short-run outlook
                           +1 212 325 7634
                 jay.feldman@credit-suisse.com
                                                     Headline CPI inflation is expected to drift lower over the winter months and early spring,
                                                     measured in year-on-year terms. After finishing 2012 at 1.7%, we project 1.6% inflation in
                                                     January and February, with a near-term trough of 1.2% in April. This assumes gasoline
                                                     prices track below year-ago levels, even as they rise somewhat on a sequential basis from
                                                     seasonal lows (our assumption is generated from a model which uses wholesale gasoline
                                                     futures to predict CPI retail gasoline prices). The effect of lower gasoline (relative to last
                                                     year) would push the yoy headline rate below the core for a period of time, which is itself
                                                     expected to continue drifting modestly lower.

 Exhibit 11: Retail gas prices                                                       Exhibit 12: Headline and core CPI
 $ per gallon, projection based on energy price futures                              y/y%

 4.5                                                                   Projection:   4.5%
                                                                         Jan '12-
                                       H1:2012                           June '13    4.0%
 4.0                                                                                                                                           Project
                                                                                     3.5%                                                      ion:
                                                                                                                                               Jan
                                                                                     3.0%                                                      '12-
 3.5                                                                                                                                           June
                                                                                     2.5%
                                                                                                                                               '13
                                                                                     2.0%
 3.0
                                                                                     1.5%

 2.5                                                                                 1.0%                                 Headline

                                                                                     0.5%                                 Core
 2.0                                                                                 0.0%
   2010-Jan2010-Jul2011-Jan2011-Jul2012-Jan2012-Jul2013-Jan                                 '10              '11         '12             '13
 Source: Bureau of Labor Statistics, Credit Suisse                                   Source: Credit Suisse



                                                     Most key measures of core inflation – including the CPI, core PCE, and the assorted
                                                     trimmed-mean and median indices – are on a slowing trend (Exhibit 13). The downward
                                                     impetus is coming mainly from goods prices, a lagged reflection of last year’s global
                                                     growth slowdown and the slackening in import prices. Import prices have stabilized
                                                     recently. But the lag between import prices and consumer goods prices tends to be long –
                                                     six months or more. So the risk is that goods prices stay soft for the time being. At the
                                                     same time, core service inflation is tracking sideways at about 2½%. The net of these
                                                     factors would translate into modest further declines in core inflation over the near term,
                                                     with stabilization expected around mid-year.




Global Inflation Watch                                                                                                                                   7
                                                                                                                                                  29 January 2013




 Exhibit 13: Five core inflation measures                                          Exhibit 14: Core goods and services
 y/y%                                                                              CPI basis y/y%

 4.0                                                  Core CPI                       5.0
                                                      Cleveland Fed Median
 3.5
                                                      Cleveland Fed Trimmed Mean     4.0
 3.0                                                  Core PCE                                                                                 Core Services
                                                      Dallas Fed Trimmed Mean        3.0
 2.5
                                                                                     2.0
 2.0
                                                                                     1.0
 1.5                                                                                                                                           Core
                                                                                                                                               Goods
 1.0                                                                                 0.0

 0.5                                                                                -1.0

 0.0                                                                                -2.0
       '07          '08           '09           '10         '11       '12                  '07         '08           '09           '10   '11       '12
 Source: Bureau of Labor Statistics, Credit Suisse                                 Source: Bureau of Labor Statistics, Credit Suisse




Global Inflation Watch                                                                                                                                         8
                                                                                                                                                             29 January 2013



                                              Inflation Expectations Review
                           Dana Saporta
                        +1 212 538 3163       Modern economic theory posits that the public’s expectations of future inflation are a key
             dana.saporta@credit-suisse.com   determinant of actual inflation outcomes. So, it is no surprise that, when speaking about
                                              their stable price mandate, Fed policymakers emphasize the need to keep inflation
                                              expectations contained. Indeed, in revamping its forward guidance in mid-December, one
                                              requirement the FOMC cited for maintaining an exceptionally low fed funds rate was that
                                              “longer-term inflation expectations continue to be well anchored.”
                                              An un-anchoring of such expectations, Fed officials warn, could compromise the hard-won
                                              inflation-fighting credibility the Fed has enjoyed for the past three decades. Moreover, a
                                              credible central bank that keeps expectations well-anchored avoids having to respond to
                                              temporary price swings.
                                              While the importance of inflation expectations is nearly universally accepted, the actual
                                              measurement of such an intangible concept remains a challenge. In the absence of any
                                              single reliable indicator, policymakers attempt to infer inflation expectations from a variety
                                              of market-based and survey-based sources. A review of the most popular measures of
                                              inflation expectations indicates that they off their lows but are far from threatening.


                                              Market-based Indicators
                                              1. Treasury Yield Curve
                                              We start with the yield curve for US government debt. To the extent individuals expect
                                              inflation to erode the purchasing power of their savings, they will demand greater returns
                                              the longer the terms of their investments. We look to conventional Treasuries because,
                                              even though the information they confer may be compromised by the presence of the Fed as
                                              a significant buyer, this deep and liquid market still can tell us something about expectations.
                                              Exhibit 15 provides a snapshot of the Treasury yield curve on four key dates: August 26,
                                              2010 (the day before Fed Chairman Bernanke in Jackson Hole strongly hinted about
                                              QE2); April 11, 2011 (in the midst of a “speed-up scare”); December 12, 2012 (the most
                                              recent FOMC meeting); and January 22, 2013 (for a current picture).

 Exhibit 15: Some of this flattening is Fed-related                                  Exhibit 16: “Anchored” long-term expectations
 US Treasury debt yields, %                                                          Conventional Treasury yields minus TIPS yields (percentage points)

 5.00                                                                                 
                                                                                     2.8
                                                                                                    Apr 11, 2011
                               26-Aug-10
                               11-Apr-11                                             2.4
 4.00
                                                                                                 Jan 22, 2013
                               12-Dec-12
                               22-Jan-13                                             2.0
 3.00

                                                                                     1.6               Dec 12, 2012

 2.00                                                                                                                                         Aug 26, 2010
                                                                                     1.2

 1.00
                                                                                     0.8


 0.00                                                                                0.4
     ffnds 1mo    3mo    6mo    1yr     2yr   3yr   5yr   7yr   10yr   20yr   30yr         2yr       3yr        4yr   5yr   6yr   7yr   8yr      9yr   10yr     20yr   30yr

 Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse                          Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse




Global Inflation Watch                                                                                                                                                        9
                                                                                                                                        29 January 2013



                         The 2-year to 10-year curve steepened from 199bps on August 26, 2010 to 276bps on
                         April 11, 2011 led by higher long-term rates. This strongly suggests an increase in inflation
                         expectations over those eight months. Some $350bn more in outright asset purchases and
                         an “Operation Twist” later, the curve has since fallen to 160bps, signaling reduced inflation
                         fears. But even assuming the Fed were not involved, isolating the expectation effect on the
                         curve is problematic. One would need to disentangle expected inflation from other factors
                         that help determine nominal yields, including real interest rates and compensation for
                         inflation risk (in case inflation behaves unexpectedly). This limits the effectiveness of
                         relying on the yield curve alone to inform our understanding of inflation expectations.
                         2. TIPS Breakeven Rates
                         When Treasury Inflation-Indexed Securities (TIIS or TIPS) were introduced in 1997, they
                         were heralded by economists as a useful tool for determining inflation expectations. By
                         taking the difference between yields on inflation-adjusted (real) and conventional (nominal)
                         Treasuries of the same maturity, one could extract a “breakeven rate.” The breakeven rate
                         could be thought of as “the compensation required by investors in nominal bonds for being
                         exposed to inflation and uncertainty about inflation (inflation risk).”2
                         Even if we abstract from the existence of an inflation risk component, the drawbacks to
                         using breakeven rates as measures of inflation expectations are well-documented. They
                         include liquidity risk premiums, indexation lags, and issues related to the taxation of
                         earnings from these investments.3
                         That said, it appears that long-term inflation expectations, as derived from TIPS and
                         nominal Treasury yields, have recently stabilized at about 2.5% (Exhibit 16). Movements in
                         short-term breakeven rates often can be dismissed as transitory expectations about
                         commodity prices, such as those for oil. But the 150bps increase in 2-year breakevens
                         since August 2010 points to a relaxation in the deflation fears that were building before the
                         Fed’s $600bn QE2 asset purchase program was announced.
                         3. Five-year/Five-year Forward Breakeven Rates
                         Another method of monitoring inflation expectations is by calculating forward inflation
                         breakeven rates. Several Fed policymakers, for example, have said publicly that they
                         watch the five-year forward five-year inflation compensation rate (also called the “five-year
                         five-year forward breakeven rate”). 4 This would reflect the compensation that will be
                         required by investors in conventional Treasuries five years from today for taking on
                         inflation risk over the following five years.
                         As economists Gurkaynak, Sack, and Wright note in their influential 2008 paper on the
                         indicator, “The behavior of this measure is often taken as a gauge of the Fed’s inflation-
                         fighting credibility. Policymakers seem to look to this measure to help judge whether near-
                         term inflation pressures are working their way into longer-term expectations...If the Fed
                         maintains its credibility, then the forward inflation compensation measure should
                         be relatively unresponsive to information about the near-term outlook.”
                         Past readings on this forward measure suggest a significant monetary policy influence on
                         investors’ required inflation compensation (Exhibit 17). Note the 1.10 percentage point rise
                         in long-term inflation expectations beginning in late August 2010 (around the time of the
                         QE2 hint at Jackson Hole) and ending on December 15, 2010 (just after the December 14,
                         2010 FOMC meeting).




                         2   Christensen, Jens. "Treasury Bond Yields and Long-Run Inflation Expectations." FRBSF Economic Letter, 2008-25, (August 15).
                         3   See, for example, Kwan, Simon. "Inflation Expectations: How the Market Speaks." FRBSF Economic Letter, 2005-25, (October 3).
                         4   Gurkaynak, Refet S., Brian Sack, and Jonathan H. Wright. “The TIPS Yield Curve and Inflation Compensation.” Finance and
                             Economics Discussion Series, 2008-05.



Global Inflation Watch                                                                                                                                 10
                                                                                                                                                29 January 2013



                                          That move can be viewed – perhaps should be viewed – as a desired outcome, since part
                                          of the rationale of QE2 in late 2010 was the concern that inflation could drift too low
                                          relative to what the Fed views as consistent with good functioning of the economy. The
                                          five-year/five-year forward rate has since fallen back by some 44bps.
                                          4. Inflation Swap Rates
                                          Derivatives constructed to hedge inflation risk are also good candidates for extracting
                                          market-based inflation expectations (Exhibit 18). Payments in inflation swaps are tied to
                                          the value of an inflation index, such as the CPI. The contracted swap rate embodies
                                          expectations of annual inflation rates over the term of the instrument. It also reflects a
                                          premium for the risk inflation turns out to differ from expectations. Illiquidity and
                                          counterparty risk also affect the pricing of inflation swaps.

                                                                                Exhibit 18: Derivatives building in modest
 Exhibit 17: What might we be expecting in 2018?                                acceleration
 Five-year five-year forward breakeven rates (%)                                Inflation swap rates (%)

 3.6
                                                                                  4.0

                                           Dec'10                Aug'11
 3.3                                                                             3.0


 3.0
                                                                                 2.0

 2.7

                                                                                 1.0
 2.4                                                                                                                         5-yr inflation swap

                                      Aug'10                                                                                 10-yr inflation swap

 2.1                                                                             0.0
                                                                  Sep'11

 1.8
                                                                                -1.0
   Jan-07     Jan-08      Jan-09      Jan-10       Jan-11     Jan-12   Jan-13
                                                                                   Jan-07     Jan-08       Jan-09   Jan-10     Jan-11        Jan-12    Jan-13
 Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse                     Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse



                                          Survey-based Indicators
                                          Rather than try to tease out inflation expectations from market rates that may reflect a
                                          variety of factors, there is always the option of querying individuals directly about their
                                          views. Numerous surveys of households and of market professionals are conducted
                                          routinely. But like market-based indicators, the information elicited from survey
                                          respondents has its own list of shortcomings.

                                          5. The Thomson Reuters/University of Michigan Survey
                                          As part of its monthly survey of consumer sentiment, Thomson Reuters, in conjunction
                                          with the University of Michigan ask households for their one-year and five-to-ten-year
                                          expectations for changes in “prices in general.” Exhibit 19 below presents a history of the
                                          survey results.
                                          Short-term expectations about price changes have shot higher so far this year, mainly due
                                          to higher oil prices. Such an increase in near-term inflation expectations may be consistent
                                          with the Fed’s objective of price stability so long as longer-term expectations are stable.
                                          Recent data from the household survey do show an increase in five-to-ten-year
                                          expectations, but the rise to date has been only modest.




Global Inflation Watch                                                                                                                                      11
                                                                                                                                                                 29 January 2013



                                                 In a March 2011 speech then NY Fed Executive Vice President Simon Potter (now the
                                                 head of the Open Market Desk) discussed the drawbacks of these types of surveys.
                                                 Results could vary, he warned, based on the wording of the survey question.
                                                 For example, the fact the Michigan survey asks about “prices in general” as opposed to
                                                 “inflation” could be a source of variation in the results. Indeed, Potter noted, “When we
                                                 probed survey respondents about their understanding of changes to “prices in general” (the
                                                 Michigan Survey question), we found that a significant fraction believed we were inquiring
                                                 about the prices they themselves recently paid—often prices that had increased or
                                                 decreased markedly, such as those for food or gasoline.” Also, the wording of Michigan’s
                                                 long-term price expectations question in particular is a frequent source of confusion.
                                                 6. Philadelphia Fed Survey of Professional Forecasters
                                                 The confusion over what is meant by the term “inflation” is greatly reduced in surveys of
                                                 economists and other professional forecasters. The Philadelphia Fed’s Survey of
                                                 Professional Forecasters (SPF), for example, asks numerous questions about the outlook
                                                 for the CPI and the PCE price index and about uncertainty around the survey responses.
                                                 Potter of the NY Fed noted, “Compared with market-based measures, the surveys have
                                                 the advantages of not being affected by varying market liquidity and not requiring any
                                                 adjustment for inflation risk compensation.” An obvious disadvantage to a survey such as
                                                 the SPF is that professional forecasters’ views do not necessarily reflect those of the
                                                 broader populace.
                                                 The most recent data from the SPF (Exhibit 20) are from early November. So, while the
                                                 latest short-term inflation observations are up, they do not incorporate the mid-December
                                                 expansion of QE3 or the quantitative adoption of economic thresholds for monetary policy.

 Exhibit 19: Consumers expect low long-term inflation                                  Exhibit 20: Do the professionals know best?
 Reuters/Univ of Michigan Survey results, %                                            Philadelphia Fed Survey of Professional Forecasters, CPI inflation (%)

  
 5.4                                                                                   3.0
                                                                                                                                                     1-year CPI forecast (%)
                                                                                                                                                     10-year CPI forecast (%)
 4.4                            Long-run (5- to 10-year)                               2.7
                                Short-run (1-year)

 3.4                                                                                   2.4



 2.4                                                                                   2.1



 1.4                                                                                   1.8


                                                                                               Note: Last updated on Nov 9, 2012
 0.4                                                                                   1.5
       '90   '92   '94    '96     '98    '00    '02      '04   '06   '08   '10   '12         '00   '01   '02   '03   '04    '05    '06   '07   '08   '09   '10     '11   '12


 Source: Reuters/University of Michigan, Credit Suisse                                 Source: Federal Reserve Bank of Philadelphia, Credit Suisse


                                                 When we compare modern monetary policy with that leading up to the inflationary
                                                 episodes of decades past, an important difference is the attention paid today to inflation
                                                 expectations. In an April 11, 2011, speech in New York City, Fed Vice Chair Janet Yellen
                                                 described this focus on expectations among contemporary policymakers:
                                                 “The FOMC is determined to ensure that we never again repeat the experience of
                                                 the late 1960s and 1970s, when the Federal Reserve did not respond forcefully
                                                 enough to rising inflation and allowed longer-term inflation expectations to drift
                                                 upward. Consequently, we are paying close attention to the evolution of inflation
                                                 and inflation expectations.”


Global Inflation Watch                                                                                                                                                         12
                                                                                                        29 January 2013



                         If long-run inflation expectations remain stable, the FOMC majority feels it can look past
                         increases in headline inflation and avoid having to make a policy response. Continued
                         increases in inflation expectations, however, could influence wage negotiations and the
                         price-setting strategies of businesses. This is why Fed officials will continue to monitor a
                         constellation of inflation expectation indicators, while acknowledging the drawbacks
                         inherent in any single attempt to measure what people expect.




Global Inflation Watch                                                                                              13
                                                                                                                                                                29 January 2013




                                                   Canada: Below target for longer
                             Jonathan Basile       Canadian core inflation should stay below the BoC’s 2% target for longer than we
                            +1 212 538 1436
                                                   previously thought. Core inflation should return to target in the middle of 2014 versus our
              jonathan.basile@credit-suisse.com
                                                   prior call for the end of 2013. The downgrade to the outlook was driven by recent readings
                                                   on core inflation coming in below our expectations and cuts to our near-term growth profile.
                                                   Core inflation downshifted to 1.1% YoY in December, marking the sixth straight month
                                                   below target and the lowest rate in nearly two years – February 2011 was 0.9% YoY. Not
                                                   since 2000 have we seen core inflation rates this low sustained for this long below the
                                                   BoC’s target.
                                                   We cut our Q4 GDP forecast to 1.0%, from our prior estimate of 1.5%, not much of an
                                                   improvement after Q3’s 0.6% advance. Not since the recession in 2009 have we seen
                                                   back-to-back GDP growth rates this low (i.e., 1.0% or below).
                                                   Slower growth in discretionary spending throughout 2012 also helps explain the core
                                                   disinflation. Discretionary retail sales, which we define as sales excluding gasoline,
                                                   food/beverages and health/personal care, decelerated to 1.6% YoY in November from
                                                   6.8% YoY in January 2012. In the past, discretionary retail sales growth has tracked core
                                                   inflation relatively well.
                                                   Looking ahead, we think core inflation will remain close to the low end of the BoC’s 1%-3%
                                                   inflation control range into the early part of 2013, before gradual rising through year end.
                                                   An improving GDP growth outlook over the course of the year is behind our call for a
                                                   bottom in core inflation in the early spring. The 1.0% gain in November discretionary retail
                                                   sales, the largest in four months and the third straight increase, also is a hopeful sign.

                                                                                          Exhibit 22: Discretionary sales deceleration,
 Exhibit 21: Core inflation below target                                                  core disinflation
                                    BoC Core CPI Inflation                                            BoC Core CPI (YoY%, left)      Discretionary Retail Sales (YoY%, right)

                             YoY%         3m% annualized     6m% annualized               3.0                                                                                    15

  4.5
                                                                                          2.5
  4.0                                                                                                                                                                            10
  3.5                                                                               Dec
                                                                                          2.0
  3.0
                                                                                                                                                                                 5
  2.5
                                                                                          1.5
  2.0
  1.5                                                                                                                                                                            0
                                                                                          1.0
  1.0
  0.5                                                                                                                                                                            -5
                                                                                          0.5                                                                           Dec
  0.0
 -0.5
        '07          '08            '09           '10        '11              '12         0.0                                                                                    -10
                                                                                                '04      '05     '06     '07      '08     '09     '10     '11     '12      '13

 Source: Statistics Canada, Credit Suisse                                                 Source: Statistics Canada, Credit Suisse




Global Inflation Watch                                                                                                                                                           14
                                                                                                                                 29 January 2013




                                                The euro area: Inflation! Wherefore art thou, inflation?
                       Violante Di Canossa
                         +44 20 7883 4192       HICP inflation in the euro area is likely to fall below 2% as soon as February. And we
         violante.dicanossa@credit-suisse.com   think inflation rates are likely to remain on a downward trend, from the December 2.2%
                                                print, for good part of this year. According to our projections, as shown in Exhibit 23, euro
                                                area HICP inflation is likely to fall as low as 1.5% in April. This would be the lowest rate
                                                since June 2010. Then, following a modest rise, we look for inflation to trough in
                                                September, at 1.4%.
                                                These projections include VAT hikes in Finland and Cyprus (January), Italy (July) and
                                                France (January 2014). Adjusting for the indirect tax changes, inflation in the euro area
                                                would be closer to 1% rather than the ECB inflation target.

                                                Exhibit 23: Euro area inflation projections, including and excluding VAT changes
                                                y/y %



                                                   4
                                                                            HICP
                                                   3                        HICP CT


                                                   2


                                                   1


                                                   0


                                                  -1
                                                        04        05          06          07        08   09   10   11     12       13
                                                Source: Thomson Reuters DataStream, Credit Suisse



                                                This year, other things being equal, two factors will determine the path for inflation:
                                                 base effects from 2012 changes in indirect taxes and
                                                 from the relative sharp increase in oil prices.
                                                With the exception of July, January, September and October should see downward
                                                pressures on prices from last year’s VAT hikes fading away. The overall impact on euro
                                                area HICP inflation from this and last year VAT changes is shown in Exhibit 24.
                                                September will see the biggest impact. We estimate that last year’s Spanish 3pp VAT
                                                increase should subtract nearly 0.15pp from euro area inflation this year.
                                                Second, based on our estimates, energy’s contribution will more than halve by
                                                February and will fall to zero in April (Exhibit 25). The impact of last year’s sharp
                                                increase in oil prices will start fading from this month and base effects will be the strongest
                                                in Q1. Our projections are based on oil prices and the exchange rate constant at current
                                                level (i.e., oil prices at just below €85pb). The picture does not change using current
                                                market pricing and it is also fairly in line with our commodity team forecasts for oil prices –
                                                although they expect Brent prices to be a touch higher, at around $115pb for most of this
                                                year (note).




Global Inflation Watch                                                                                                                       15
                                                                                                                                             29 January 2013




 Exhibit 24: Estimated impact of VAT changes on
 euro area inflation                                                          Exhibit 25: Energy contribution to inflation
 Percentage points                                                            Percentage points

                                                                               2
  0.05
                                                                                                                                                Forecasts
                                                                               1
  0.00


                                                                               0
 -0.05



 -0.10                                                                        -1
                                  2012 VAT
                                  2013 VAT

 -0.15                                                                        -2
            Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec                         08         09           10           11        12         13
 Source: Credit Suisse                                                        Source: Thomson Reuters DataStream, Credit Suisse



                                              Beyond base effects, it is worth noting that energy has surprised on the downside in
                                              the last months and downside risks remain, in our view. As a mark-to-market
                                              benchmark, we use weekly prices for petrol in the euro area. These display a close
                                              relationship with HICP fuel and lubricants and HICP liquid fuel (combined, just above 50%
                                              of energy HICP). Such a relationship, as shown in Exhibits 26 and 27, points to some
                                              downside risks to our January energy forecast.

 Exhibit 26: Euro area petrol prices vs. HICP                                 Exhibit 27: Euro area petrol prices vs. HICP
 January HICP is Credit Suisse estimate                                       January HICP is Credit Suisse estimate

                                                                              1.7             Weekly euro area petrol prices (€/ltr), lhs               185
                    Weekly euro area petrol prices (€/ltr), lhs
 1.6                                                                    145                   HICP liquid fuel, rhs                                     175
                    HICP fuel & lubricants, rhs                               1.6
                                                                                                                                                        165
 1.5
                                                                        135   1.5                                                                       155
 1.4                                                                                                                                                    145
                                                                              1.4
                                                                        125
                                                                                                                                                        135
 1.3
                                                                              1.3
                                                                                                                                                        125
                                                                        115
 1.2                                                                          1.2                                                                       115

                                                                        105                                                                             105
 1.1                                                                          1.1
                                                                                                                                                        95
 1.0                                                                    95    1.0                                                                       85
       08            09           10            11          12     13               08           09              10           11        12         13
 Source: Thomson Reuters DataStream, Credit Suisse                            Source: Thomson Reuters DataStream, Credit Suisse



                                              Second, our simple model for these HICP components, based on Brent oil prices on a
                                              contemporaneous and lagged basis, has displayed significant negative residuals in the
                                              last three months. Following the price increases during the summer, fuel prices for the final
                                              consumers have been slashed more than the historical relationship with Brent would have


Global Inflation Watch                                                                                                                                   16
                                                                                                                                  29 January 2013



                                              suggested. Residuals are likely to turn back positive in the not too distant future, but the
                                              current trend may also partly reflect weak demand across the euro area. If that were to be
                                              the case (and dominate), increases in energy price may remain (relative) subdued for a
                                              little bit longer than otherwise.
                                              To conclude, a note on core inflation. Core inflation is likely to record a few months of
                                              low 1% inflation prints from March. In the short term, in particular, it is clear that
                                              momentum is still downward. The 6-month over 6-month change in the seasonally
                                              adjusted measure of core inflation is at its lowest for a year (Exhibit 28). Indeed, negative
                                              output gaps in much of the area plus relative subdued inflationary pressures from the core
                                              will keep the euro area aggregate rate below the “price stability” definition for much of this
                                              year. Exhibit 29, for instance, shows the gap between German and euro area inflation.
                                              According to our projections, only by the end of the forecasting horizon German inflation
                                              will move above the euro area aggregate on a consistent basis.

 Exhibit 28: Core inflation momentum                                          Exhibit 29: German-euro area inflation differential
 HICP ex food, alcohol, tobacco and energy, seasonally adjusted               Two-year rolling average, percentage points

 3.0                                                                            0.0
                                                     6m/6m annualised
                                                     y/y
 2.5                                                                           -0.2


 2.0                                                                           -0.4                                                     CS fcst


 1.5                                                                           -0.6


 1.0                                                                           -0.8


 0.5                                                                           -1.0
       97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13                             00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
 Source: Thomson Reuters DataStream, Credit Suisse                            Source: Thomson Reuters DataStream, Credit Suisse




Global Inflation Watch                                                                                                                        17
                                                                                                                                                         29 January 2013




                                                    UK: Don’t stand so close to me
                              Steven Bryce                       Currently the gap between the RPI and CPI measure of inflation is low, despite
                          +44 20 7883 7360
                                                                  the high contribution from the formula effect component.
                steven.bryce@credit-suisse.com
                                                                 We estimate that this “basis”, currently 40bps, will return to around 90bps over the
                                                                  next 5 years, and 140bps in the five years following that.
                                                    The conclusion of the National Statistician’s consultation on the formula effect gap
                                                    between RPI and CPI – that no change would be made to RPI calculations – came as a
                                                    surprise to many. In turn, this decision has shed renewed focus on the correct
                                                    estimate for the long term gap between RPI and CPI inflation (the basis).
                                                    However, despite the focus on the formula effect (which increases the gap between
                                                    RPI and CPI inflation) the reality is that the basis is, if anything, smaller than the
                                                    historical average. Even when housing components are excluded, the scale of the gap
                                                    does not appear abnormal (Exhibit 30).
                                                    As Exhibit 31 shows, the gap can be broken down into four main components, housing,
                                                    the formula effect, weights and coverage differences. In a paper by the OBR (Office for
                                                    Budget Responsibility)5, long run estimates are made for each of these components, and
                                                    the long-run gap is estimated to be 1.4%. This is substantially higher than the current
                                                    gap of 40bps, and so the medium term prospect for the basis is of interest.

 Exhibit 30: The gap excluding housing                                                           Exhibit 31: The RPI – CPI gap inc. housing
 yy%, RPI ex MIPs ex depreciation minus CPI                                                      yy%

   2.0                     RPI ex MIPs and ex depreciation minus CPI                               3

                           Average 1997 to 2007                                                    2
   1.5
                                                                                                   1
   1.0                                                                                             0

                                                                                                   -1                Difference due to housing
   0.5
                                                                                                   -2                Difference due to formula
                                                                                                                     effect
   0.0                                                                                                               Difference due to weights
                                                                                                   -3
                                                                                                                     Difference due to coverage
  -0.5                                                                                             -4
         96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13                                          97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
 Source: Office for National Statistics, Credit Suisse                                           Source: Office for National Statistics, Credit Suisse



                                                    One: Housing component
                                                    The single largest contributor to the volatility of the basis historically has been the housing
                                                    components of the RPI that are excluded from the CPI (in our calculations we focus on
                                                    mortgage interest payments and depreciation). The latter essentially follows house prices,
                                                    while mortgage interest payments are a function of both house prices and mortgage rates.
                                                    The OBR assumption for the long-run contribution of housing components is 35bps for
                                                    non-MIPs components of the RPI and 15bps for MIPs. However, over a 5-10 year
                                                    horizon there are two factors confounding these figures. First, house prices are likely
                                                    to remain depressed in the near term, as consumer incomes remain weak, with a
                                                    significant debt overhang. This should constrain the size of the basis. On the other hand, it


                                                    5    Working paper No.2 "The long-run difference between RPI and CPI inflation" November 2011



Global Inflation Watch                                                                                                                                               18
                                                                                                                                                        29 January 2013



                                       is likely that the central bank will have to begin to raise rates at some point over the next
                                       decade, and this will place upward pressure on MIPs, and therefore the basis.
                                       Exhibit 32 and Exhibit 33 show some basic assumptions on house prices and interest
                                       rates out to 2025, with our estimates of the impact this would have on the contribution of
                                       the housing component to the basis. We estimate that the housing contribution will
                                       remain subdued until around 2015, when a rate tightening cycle may start to begin,
                                       and house prices may begin to recover. We have loosely derived the policy rate figures
                                       from the sterling OIS curve, while the house price forecast is based on subdued growth in
                                       the next few years before returning to a growth rate somewhat below the long term house
                                       price growth rate of 10%. One key issue that may dampen some of the pass-through
                                       from increases in base rate is the current elevated spread between mortgage rates
                                       and base rate. This spread is likely to decrease in coming years – indeed the ability of this
                                       spread to decrease is probably a pre-condition of tighter policy.

 Exhibit 32: Assumptions                                                             Exhibit 33: Housing contribution to RPI inflation
 %                                                                                   Percentage points

 Year                    House price       Policy rate        Mortgage rate
                                                                                      1.2                    Housing contribution
                           growth
 2013                        1.5               0.5                  3.4                                      Average contribution 1997-
                                                                                      1.0
 2014                        2.0               0.5                  3.4                                      2007
 2015                        3.0               0.8                  3.5
                                                                                      0.8
 2016                        4.0               1.0                  3.6
 2017                        5.0               1.5                  3.8
                                                                                      0.6
 2018                        5.0               2.0                  4.2
 2019                        6.0               2.5                  4.5
                                                                                      0.4
 2020                        6.0               3.0                  4.9
 2021                        6.0               3.0                  4.9
                                                                                      0.2
 2022                        6.0               3.5                  5.2
 2023                        6.0               3.5                  5.3
                                                                                      0.0
 2024                        6.0               4.0                  5.6
 2025                        6.0               4.0                  5.6
 Source: Credit Suisse                                                               Source: Credit Suisse



                                       Given the housing component, the formula effect and the weights contribution are the
                                       other two main contributors to the RPI – CPI gap. As Exhibit 34 shows, despite the
                                       large upward movement in the formula effect since 2010, the downward movement
                                       in weights has left the net contribution at around the historical average.
                                       Two: The formula effect
                                       The likely path of the formula effect in the medium to long term is quite uncertain.
                                       One factor that could alter this component are alterations to the way clothing prices are
                                       collected. A widening of clothing definitions in 2010 caused the formula effect to increase
                                       as it increased the variability of prices. Investigation into altering these collection methods
                                       is ongoing and it could be that these changes will be implemented, which would decrease
                                       the formula effect6.
                                       The other key issue is that the formula effect gap has naturally decreased by about 20%
                                       since its peak in March 2011. Exhibit 35 shows the clothing contribution to the formula
                                       (data is available to June, the dotted line shows the path of the clothing contribution in line
                                       with the reduction in the overall formula effect). Indeed, the peak in the formula effect


                                       6   It is unclear whether the ONS will be willing to make such alterations to the RPI index. In the recommendation following the
                                           consultation it was suggested that future changes to the RPI be kept to a minimum. However, changes could still be made to the
                                           CPI, which would still impact on the basis.



Global Inflation Watch                                                                                                                                                 19
                                                                                                                                                            29 January 2013



                                                    correlated well with the exceptionally high level of clothing price inflation in June. To the
                                                    extent that high inflation rates are correlated with higher variability in prices, this suggests
                                                    that the formula effect gap may decline as clothing inflation rates decline. It is possible
                                                    that the long-run level for the formula effect may therefore actually be less than the
                                                    80bps lower estimate suggested by the OBR piece.

 Exhibit 34: Basis contributions                                                     Exhibit 35: The clothing contribution is declining
 yy%                                                                                 yy%

                                                                                      12                  gap between clothing and footwear                             0.7
   0.9                                                                                                    RPI and CPI (l.h.s.)
                                                                                      10                                                                                0.6
                                                                                                          clothing and footwear formula effect
                                                                                                          (r.h.s.)
                                                                                                                                                                        0.5
   0.4                                                                                  8                 projected clothing and footwear
                                                                                                          formula effect (r.h.s.)
                                                                                                                                                                        0.4
                                                                                        6
  -0.1
                                                                                                                                                                        0.3
                       Difference weights                                               4
                                                                                                                                                                        0.2
  -0.6                 Difference formula
                       effect                                                           2                                                                               0.1
                       Weights/formula effect
                       sum
  -1.1                                                                                  0                                                                               0.0
         97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13                                 03     04      05       06      07      08       09   10   11    12    13
 Source: Office for National Statistics, Credit Suisse                               Source: Office for National Statistics, Credit Suisse



                                                    Three: The weights component
                                                    The weights component is slightly more complicated than the formula effect,
                                                    particularly since data is not available broken down by category, and the figures
                                                    tend to be a remainder component after the other elements of the basis have been
                                                    calculated. One approach is to calculate the breakdown between RPI and CPI by
                                                    category. To achieve this we have recalculated the RPI on the basis of groups that broadly
                                                    fit into the 12 COICOP categories which are used as the basis of the CPI. Given the
                                                    weights of each component in the index and their respective inflation rates it is possible to
                                                    decompose the gap by category, and by differences due to weighting and the gap
                                                    between inflation rates. This allows several estimates to be produced, such as the sum of
                                                    all the positive and all the negative contributions to the basis (Exhibit 36).




Global Inflation Watch                                                                                                                                                   20
                                                                                                                                                                       29 January 2013




 Exhibit 36: Positive and negative contributions                                                 Exhibit 37: Estimated transport gap
 yy%                                                                                             yy% transport inflation in the RPI minus in the CPI

   2.0                                                                                              6


                          Positive                                                                  4
   1.5
                          Negative
                                                                                                    2
   1.0

                                                                                                    0
   0.5
                                                                                                   -2

   0.0
                                                                                                   -4

  -0.5                                                                                             -6
         97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13                                               97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
 Source: Office for National Statistics, Credit Suisse                                           Source: Office for National Statistics, Credit Suisse



                                                    Overall, our best estimate is that the RPI (ex MIPs and depreciation) minus CPI wedge
                                                    will continue to widen again over time. Exhibit 36 supports this view, as it shows that
                                                    much of the narrowing of the gap is due to a spike in the negative contribution to the wedge,
                                                    which is normally a transitory phenomenon. We believe that a portion of the current negative
                                                    value for the weights component may be due to transport prices (Exhibit 37) which appear to
                                                    have correlated relatively well with negative value of the weights component in the past. As
                                                    such, it seems reasonable to assume that this will subside over time.
                                                    One area of concern is that part of the negative weights component may be due to the
                                                    formula effect. The weights component is calculated by the remainder when housing, the
                                                    formula effect and coverage are excluded, placing CPI on the same calculations are the
                                                    RPI. The weight of clothing in the CPI is 6.5%, while in the RPI it is around 4.5%-5.0%. the
                                                    inflation rate for clothing in the RPI is also around 7% higher than in the CPI. This means,
                                                    that CPI is higher than it would be if clothing had RPI weights, and this may be captured
                                                    as a negative contribution to the weights component. The weights calculation is not
                                                    entirely transparent, so it is not clear if this is the case. However, if it is correct this
                                                    may represent a more permanent downward pressure on the weights component
                                                    over time, possibly of around 10bps at current levels, relative to its previous
                                                    contribution. Nonetheless, one may expect this to be reduced if either the formula
                                                    effect or the level of clothing price inflation moderates.

Exhibit 38: Contributions to the RPI minus CPI gap, Credit Suisse estimates
Percentage points

                                                         domestic and                           comm., rec.,                                   gap ex
                     Food, alc. cloth., footwear                 furn.            transp.               culture             other         hous./MIPs      hous./MIPs             gap
1997-2007                     0.2                  0.2             0.1                -0.1                 -0.1               -0.1                  0.2          1.0              1.2
Dec-12                        0.2                  0.3             0.1                -0.3                  0.0               -0.1                  0.2          0.3              0.4
Change                        0.0                  0.1             0.0                -0.2                  0.1                0.0                  0.0         -0.8              -0.8
Source: Credit Suisse, the housing component includes council taxes, dwelling insurance and ground rent




Global Inflation Watch                                                                                                                                                             21
                                                                                                                                                         29 January 2013



                                                    The average contribution of the weights component to the wedge since 1997 has been
                                                    -20bps. This is somewhat complicated by changes in the methodology with which the
                                                    component is calculated. As such, in Exhibit 39 we have assumed that the weights
                                                    component will average around -20bps in the near term, and will decrease further in the
                                                    longer term (closer toward the long-run OBR estimate of zero percent).
                                                    Four: The coverage component
                                                    The OBR estimates that coverage differences will contribute zero percent to the basis in
                                                    the long run. Currently the coverage component contributes -6bps to the wedge. Given
                                                    changes to the coverage of vehicle purchases in the CPI and the RPI, which will increase
                                                    the similarity of the indices, we believe that this assumption is reasonable.
                                                    In conclusion our best estimates for the evolution of the basis are presented in
                                                    Exhibit 39. These figures are clearly subject to much uncertainty, and so should be interpreted
                                                    with care. Overall, we believe it to be highly likely that the basis will return to around its
                                                    historical average over the next ten year period, though it may still remain subdued in the near
                                                    term due to weak house price growth and relative stability in interest rates.

Exhibit 39: Potential outturns for the basis
Percentage points

                                           OBR mid-estimate                  1997-2007 average current values (Dec 2012)    CS spot 5Y estimate CS 5Y 5Y forward estimate
Formula effect                                                0.9                              0.5                   0.9                    0.7                       0.7
Housing (of which MIPs)                                 0.5 (0.2)                         0.9 (0.3)             0.3 (0.1)              0.4 (0.2)                 0.8 (0.5)
Coverage                                                      0.0                             -0.1                  -0.1                    0.0                       0.0
Difference in weights                                         0.0                             -0.2                  -0.6                   -0.2                      -0.1


RPI - CPI wedge                                               1.4                              1.2                   0.4                    0.9                       1.4
Source: Office for Budget Responsibility, Office for National Statistics, Credit Suisse



                                                    The medium-term outlook for inflation is complicated not just by the path of the basis, but
                                                    also by potential changes in the monetary policy framework of the UK. As we discuss in a
                                                    separate note, we believe that the start of Mark Carney’s governorship at the Bank of
                                                    England may provide the opportunity for a change towards a more stimulative policy
                                                    stance. At this stage it is unclear whether this will involve some alteration to the inflation
                                                    target, or simply a letter from the Chancellor stating that it is acceptable for inflation to take
                                                    longer to return to target. Nonetheless, this presents upside risks to inflation. As such,
                                                    inflationary (RPI) pressures in the medium term are likely to be to the upside, both
                                                    from the basis and from the underlying path of inflation.




Global Inflation Watch                                                                                                                                                 22
                                                                                                                                   29 January 2013




                                                Japan: Depreciation of the yen has started to impact
                                                import prices
                       Hiromichi Shirakawa      Consumer prices (CPI): The Exhibit 40: Core CPI yoy%
                          + 81 3 4550 7117      year-on-year core (excluding
        hiromichi.shirakawa@credit-suisse.com                                           0.8
                                                fresh food) inflation rate fell         0.6
                           Takashi Shiono       from 0.1% in November to -
                          +81 3 4550 7189                                               0.4
                                                0.2% in December (Exhibit 40)
             takashi.shiono@credit-suisse.com                                           0.2
                                                as the negative contribution of
                                                non-fresh         food       prices     0.0
                                                decreased from -0.05pp to - -0.2
                                                0.09pp, and the contribution of -0.4
                                                accommodation charges turned -0.6                                       Core Foods
                                                                                                                        Energy
                                                to a negative -0.02pp from -0.8                                         CPI ex. Food and energy
                                                +0.03pp in November. The -1.0                                           Core CPI
                                                declines in the contribution from




                                                                                           Jul-11




                                                                                           Jul-12
                                                                                          Oct-11




                                                                                          Oct-12
                                                                                          Jun-11

                                                                                          Aug-11
                                                                                          Sep-11

                                                                                          Nov-11
                                                                                          Dec-11
                                                                                          Jan-12
                                                                                          Feb-12
                                                                                          Mar-12
                                                                                          Apr-12

                                                                                          Jun-12

                                                                                          Aug-12
                                                                                          Sep-12

                                                                                          Nov-12
                                                                                          May-11




                                                                                          May-12
                                                airfares (-0.0pp to -0.02pp) and
                                                overseas package tours (-0.0pp
                                                to -0.02pp) were also the Source: MIC, Credit Suisse
                                                background. Accordingly, the core-core (excluding food and energy) inflation rate fell from -
                                                0.5% in November to -0.6% in December. Prices once again rose for core non-durables
                                                (+0.4% yoy) and declined only modestly for services (-0.1% yoy). Prices did however continue
                                                to fall quite rapidly for durables (-3.6% yoy) and were also down noticeably for semi-durables (-
                                                0.4% yoy). The Abe administration is targeting a +2% inflation rate, but prices of durable goods
                                                remain in a structural downtrend as a consequence of ongoing technological innovation in the
                                                digital household appliances sector (so-called hedonic effects), meaning that quite substantial
                                                – and perhaps impracticable – price rises for non-durable goods and services may be required
                                                in order to achieve the government's goal.
                                                Corporate prices: The CGPI rose 0.3% mom in December (November: 0.0% mom), as a
                                                result of which the pace of year-on-year contraction slowed from -0.9% in November to
                                                -0.6% in December (Exhibit 41). The 0.3% mom increase reflected positive contributions
                                                from gasoline, kerosene, and other petroleum & coal products (+0.15pp), chicken eggs,
                                                pork, and other agriculture, forestry & fishery products (+0.07pp), and unwrought copper
                                                and other nonferrous metals (+0.05pp). Iron & steel prices fell for a 15th straight month (-
                                                0.2% mom, contribution: -0.01pp), but could be on the verge of bottoming out given that
                                                prices of scrap & waste were actually up 5.3% from November (+0.03pp). Continued price
                                                rises for raw materials and intermediate inputs have perhaps started to have a negative
                                                impact on corporate profits. Looking at the breakdown by stage of demand and use, it can
                                                be seen that prices rose further for raw materials (+3.2% mom) than for final goods (+0.6%
                                                mom). The price ratio index calculated as final goods / (raw materials + intermediate
                                                materials) thus fell for a second straight month, although it did continue to improve on a
                                                year-on-year basis (+0.4%). We expect to see further increases in raw materials costs in
                                                January and February given that international commodities prices have been in a gradual
                                                uptrend since mid-December.
                                                Export and import prices: The yen's recent weakness has started to have an
                                                appreciable impact on export prices, which rose 2.1% mom and 2.1% yoy in December on
                                                a yen-denominated basis (+1.3% yoy in November). Export prices did however fall 0.3%
                                                from November on a contract currency basis. Prices of exported chemical products surged
                                                7.6% yoy in December after a 3.3% yoy rise in November, marking a 4.3pp acceleration.
                                                Import prices have also risen as a consequence of the yen's depreciation, with December
                                                showing increases of 2.7% mom and 3.4% yoy on a yen-denominated basis (up from
                                                +1.4% yoy in November). The biggest contributors to year-on-year import price inflation
                                                were mineral fuels (+1.84pp) and foods (+0.49pp). Import prices were virtually unchanged
                                                on a contract currency basis, however, rising just 0.1% mom.



Global Inflation Watch                                                                                                                         23
                                                                                                                                                                                        29 January 2013




                                                                                                                                      Exhibit 42: Export price, import price, and the terms
 Exhibit 41: CGPI, yoy% and mom%                                                                                                      of trade, yoy%
  1.0                                                                                                                                                    Export price   Import price   Terms of trade
                                    mom%                                CGPI (yoy%, RHS)                                       4.0
  0.8                                                                                                                          3.0     15.0
                                                                                                                               2.0     13.0
  0.6                                                                                                                                  11.0
                                                                                                                               1.0      9.0
  0.4
                                                                                                                               0.0      7.0
  0.2                                                                                                                          -1.0     5.0
                                                                                                                               -2.0     3.0
  0.0                                                                                                                                   1.0
                                                                                                                               -3.0    -1.0
 -0.2                                                                                                                          -4.0    -3.0
 -0.4                                                                                                                          -5.0    -5.0
                                                                                                                               -6.0    -7.0
 -0.6                                                                                                                                  -9.0
                                                                                                                               -7.0
 -0.8                                                                                                                                 -11.0
                                                                                                                               -8.0   -13.0
 -1.0                                                                                                                          -9.0   -15.0
         Dec-09

                  Mar-10

                           Jun-10

                                    Sep-10

                                             Dec-10

                                                      Mar-11

                                                               Jun-11

                                                                         Sep-11

                                                                                  Dec-11

                                                                                           Mar-12

                                                                                                    Jun-12

                                                                                                             Sep-12

                                                                                                                      Dec-12




                                                                                                                                                Jul-10




                                                                                                                                                Jul-11




                                                                                                                                                Jul-12
                                                                                                                                               Aug-10
                                                                                                                                               Sep-10
                                                                                                                                               Nov-10
                                                                                                                                               Dec-10
                                                                                                                                               Jan-11



                                                                                                                                               Jun-11
                                                                                                                                               Aug-11
                                                                                                                                               Sep-11
                                                                                                                                               Nov-11
                                                                                                                                               Dec-11
                                                                                                                                               Jan-12



                                                                                                                                               Jun-12
                                                                                                                                               Aug-12
                                                                                                                                               Sep-12
                                                                                                                                               Nov-12
                                                                                                                                               Dec-12
                                                                                                                                               Oct-10


                                                                                                                                               Feb-11
                                                                                                                                               Mar-11
                                                                                                                                               Apr-11
                                                                                                                                               May-11



                                                                                                                                               Oct-11


                                                                                                                                               Feb-12
                                                                                                                                               Mar-12
                                                                                                                                               Apr-12
                                                                                                                                               May-12



                                                                                                                                               Oct-12
 Source: BoJ, Credit Suisse                                                                                                           Source: BoJ, Credit Suisse



                                                                        Expected inflation rate: Exhibit 43: Household's expected inflation rate, yoy%
                                                                        The      household     sector's
                                                                                                                            Weighted average expected inflation rate
                                                                        expected inflation rate fell for 4.0
                                                                                                                            Adjusted expected inflation rate
                                                                        a second straight month.                            Core CPI yoy%
                                                                        According to the Cabinet 3.0
                                                                        Office's Monthly Consumer 2.0
                                                                        Confidence       Survey      for 1.0
                                                                        December,         63.8%       of
                                                                        households expect prices to 0.0
                                                                        rise over the next year, down -1.0
                                                                        from 64.4% in November. -2.0
                                                                        The expected inflation rate
                                                                        for December, estimated as -3.0
                                                                                                                                            Jun-05


                                                                                                                                            Jun-06


                                                                                                                                            Jun-07


                                                                                                                                            Jun-08


                                                                                                                                            Jun-09


                                                                                                                                            Jun-10


                                                                                                                                            Jun-11
                                                                                                                                            Sep-04
                                                                                                                                            Dec-04
                                                                                                                                            Mar-05




                                                                                                                                            Jun-12
                                                                                                                                            Sep-05
                                                                                                                                            Dec-05
                                                                                                                                            Mar-06
                                                                                                                                            Sep-06
                                                                                                                                            Dec-06
                                                                                                                                            Mar-07
                                                                                                                                            Sep-07
                                                                                                                                            Dec-07
                                                                                                                                            Mar-08
                                                                                                                                            Sep-08
                                                                                                                                            Dec-08
                                                                                                                                            Mar-09
                                                                                                                                            Sep-09
                                                                                                                                            Dec-09
                                                                                                                                            Mar-10
                                                                                                                                            Sep-10
                                                                                                                                            Dec-10
                                                                                                                                            Mar-11
                                                                                                                                            Sep-11
                                                                                                                                            Dec-11
                                                                                                                                            Mar-12
                                                                                                                                            Sep-12
                                                                                                                                            Dec-12
                                                                        a weighted average across
                                                                        the various response groups
                                                                        and adjusted for discrepancy Source: Cabinet Office, Credit Suisse
                                                                        with actual CPI inflation, fell
                                                                        significantly from +0.23% in November to +0.04% in December, which was perhaps a
                                                                        reflection of earlier declines in oil prices. It is important to note, however, that the latest
                                                                        survey would have been conducted around December 15, meaning that the impact (if any)
                                                                        of subsequent yen depreciation and the Abe administration's announcements of various
                                                                        "anti-deflation" measures will not become apparent until the January survey.
                                                                        Wages and labor costs: While wage levels do appear to have bottomed out, further
                                                                        improvements in employment conditions may be necessary before we begin to see
                                                                        evidence of a clear uptrend. Monthly Labour Survey data for November showed total cash
                                                                        earnings down 0.8% yoy (October: -0.4% yoy; Exhibit 44) due to a 0.3% yoy decrease in
                                                                        contractual cash earnings (which reflected a 0.1% yoy fall in scheduled earnings) with a
                                                                        9.2% yoy decline in special cash earnings. Overtime pay also fell 1.3% yoy in line with a
                                                                        further shortening of non-scheduled work hours. The scheduled hourly wage has
                                                                        weakened somewhat of late, falling 0.6% mom in November after a 0.5% mom increase in
                                                                        October. Scheduled hourly pay rose from late 2011 through mid-2012 in line with a
                                                                        continued tightening of labor market supply/demand, but the pace of improvement has
                                                                        slowed of late due to an apparent peaking out of the ratio of job openings to job applicants.
                                                                        Yet, the average hourly wage for part-time workers continued to rise 0.8% yoy to mark an
                                                                        ninth consecutive increase.




Global Inflation Watch                                                                                                                                                                              24
                                                                                                                                                                                                   29 January 2013




 Exhibit 44: Hourly wage (overall employee,                                 Exhibit 45: GDP gap vs. CPI ex. food and energy
 2010=100)                                                                  inflation rate
                               Hourly wage (2010=100)                                                                    GDP gap
 103.0                                                              1.20       2.0                                       CPI ex. food and energy, yoy%, RHS                                                                  0.5
                               Job-offer to applicant ratio (RHS)
 102.0
                                                                    1.00       0.0                                                                                                                                           0.0
 101.0
                                                                    0.80      -2.0                                                                                                                                           -0.5
 100.0
   99.0                                                             0.60      -4.0                                                                                                                                           -1.0
   98.0
                                                                    0.40      -6.0                                                                                                                                           -1.5
   97.0
                                                                    0.20      -8.0                                                                                                                                           -2.0
   96.0
   95.0                                                             0.00     -10.0                                                                                                                                           -2.5
          Nov-00

          Nov-01

          Nov-02

          Nov-03

          Nov-04

          Nov-05

          Nov-06

          Nov-07

          Nov-08

          Nov-09

          Nov-10

          Nov-11

          Nov-12
          May-01

          May-02

          May-03

          May-04

          May-05

          May-06

          May-07

          May-08

          May-09

          May-10

          May-11

          May-12




                                                                                     Sep-98
                                                                                              Sep-99
                                                                                                       Sep-00
                                                                                                                Sep-01
                                                                                                                          Sep-02
                                                                                                                                   Sep-03
                                                                                                                                            Sep-04
                                                                                                                                                     Sep-05
                                                                                                                                                              Sep-06
                                                                                                                                                                       Sep-07
                                                                                                                                                                                Sep-08
                                                                                                                                                                                         Sep-09
                                                                                                                                                                                                  Sep-10
                                                                                                                                                                                                           Sep-11
                                                                                                                                                                                                                    Sep-12
 Source: MHLW, Credit Suisse                                                Source: Cabinet Office, MIC, MHLW, METI, BoJ, Credit Suisse



                                            Output gap (quarterly): The core-core CPI inflation rate tends to be heavily influenced by
                                            the output gap (difference between actual and potential GDP), which can be considered a
                                            yardstick for supply/demand conditions throughout the economy as a whole (Exhibit 45).
                                            Potential GDP (supply capacity) has grown very little of late owing to the combined impact
                                            of societal aging and industrial "hollowing out" (offshoring of production bases by
                                            Japanese manufacturers), and with actual (real) GDP continuing to be boosted by post-
                                            3/11 reconstruction, the negative output gap ("deflation gap") had gradually narrowed
                                            through 2Q 2012. However, a 0.9% qoq (3.5% annualized) contraction of real GDP
                                            caused the deflation gap to widen once again in 3Q, with our own estimates pointing to a
                                            zero-inflation output gap of -1.7%. We expect to see another decline in real GDP for 4Q
                                            2012 owing to the impact of global production cuts (weaker foreign demand) and the late
                                            September termination of the "eco car" subsidy (weaker domestic consumption). That said,
                                            with the output gap having rebounded from the post-Lehman (1Q 2009) bottom of -8.9%,
                                            we see little risk of significantly worse deflation at the core-core CPI level for at least the
                                            time being.
                                            Monetary policy: GDP figures for 3Q 2012 provided further confirmation of an economic
                                            downturn attributable to the impact of weaker foreign demand on domestic manufacturing
                                            activity, and 4Q data could show a third consecutive contraction stemming from the
                                            continued need for inventory adjustments (a reflection of slow-to-recover manufacturing
                                            shipments), a deceleration in reconstruction-related public works projects, and weak
                                            corporate capex. On January 22 the Bank of Japan lowered its growth forecast for FY2012
                                            and announced (1) the adoption of a +2% "price stability target" for the CPI and (2) the
                                            commencement from 2014 of open-ended asset purchases totaling around ¥13 trillion per
                                            month (including ¥2 trillion in JGBs and ¥10 trillion in T-Bills). By way of forward guidance
                                            the BOJ indicated that it "will pursue aggressive monetary easing, aiming to achieve the
                                            above-mentioned price stability target, through a virtually zero interest rate policy and
                                            purchases of financial assets, as long as the Bank judges it appropriate to continue with
                                            each policy measure respectively". The BOJ also hiked its growth forecasts for FY2013
                                            and FY2014 to reflect "the effects of various economic measures" and "movements in
                                            foreign exchange rates". The central bank's new policy framework appears to have been
                                            welcomed by the government, and the BOJ may therefore decide to hold off on additional
                                            easing measures for at least the time being in the absence of a significant shift in yen
                                            exchange rates.




Global Inflation Watch                                                                                                                                                                                                        25
                                                                                                           29 January 2013



                         Credit Suisse CPI forecasts: We are now forecasting (year-on-year) core CPI inflation of
                         -0.1% for CY2012, -0.2% for CY2013, -0.2% for FY2012, and -0.0% for FY2013, and core-
                         core CPI inflation of -0.5% for CY2012, -0.5% for CY2013, -0.6% for FY2012, and -0.3%
                         for FY2013. Having upwardly revised our GDP growth forecasts in our January 17 Japan
                         Economics/Fixed Income Weekly to reflect the potential impact of yen depreciation and
                         the Abe administration's economic stimulus package, we have also hiked our inflation
                         forecasts under the assumption that the economy's output gap is likely to improve at a
                         faster pace. Our quarterly forecasts are presented in Exhibit 127. It is worth noting that the
                         roughly 0.4pp boost to the core-core CPI inflation rate associated with the February 2012
                         change in survey coverage with respect to televisions will disappear from February 2013,
                         thereby lowering the inflation rate for 2013 as a whole. That said, our calculations still point
                         to gradual easing of deflationary pressure in line with a narrowing of the economy's
                         negative output gap. We now expect GDP growth to accelerate through mid-2013 on the
                         back of recent yen depreciation and various economic stimulus measures, as a result of
                         which the negative output gap might be wiped out altogether in the April–June quarter.
                         Growth should then remain relatively steady throughout the remainder of FY2013 as
                         demand is frontloaded ahead of the April 2014 consumption tax hike, which would be
                         consistent with a positive output gap in the 1–2% range. We thus expect the core-core CPI
                         inflation rate to rise to around -0.1% in 1Q 2014.




Global Inflation Watch                                                                                                 26
                                                                                                                                                                                                              29 January 2013




                                                      EM inflation: Still broadly well-behaved
                                Natig Mustafayev      EM’s year-on-year aggregate headline inflation was broadly flat at about 5.0%
                               +44 20 7888 1065       through H2 2012 after slowing notably to a 31-month low of 4.7% in July 2012 from
                 natig.mustafayev@credit-suisse.com
                                                      7.0% in mid-2011 (Exhibit 46). The modest pick-up in EM’s energy and food price
                                                      inflation in H2 2012 was offset by the moderation in core7 inflation to a 26-month low of
                                                      3.6% in October-December 2012. We note that most EM economies operated with notable
                                                      excess capacities for most of 2012 and that they will remain below potential during 2013,
                                                      according to our forecasts (Exhibit 47).

 Exhibit 46: EM CPI inflation                                                                                       Exhibit 47: EM output gaps*
 % yoy                                                                                                              % deviation of real GDP from potential output

  15                                                                                                           15    2.4                                                                                                        2.4
                                                          Headline CPI*
                                                          Food                                                       1.8                                                                  based on CS                           1.8
  12                                                                                                           12                                                                         forecasts


                                                                                        CS forecast
                                                          Core**                                                     1.2                                                                                                        1.2
                                                                                                                     0.6                                                                                                        0.6
    9                                                                                                          9
                                                                                                                     0.0                                                                                                        0.0
    6                                                                                                          6    -0.6                                                                                                        -0.6
                                                                                                                    -1.2                                                                                                        -1.2
    3                                                                                                          3    -1.8                                                                                                        -1.8
                                                                                                                    -2.4                                                                                                        -2.4
    0                                                                                                          0
                                                                                                                    -3.0                                                                                                        -3.0
        Dec-06


                       Dec-07


                                  Dec-08


                                            Dec-09


                                                          Dec-10


                                                                     Dec-11


                                                                               Dec-12


                                                                                                      Dec-13




                                                                                                                           4Q '09

                                                                                                                                    2Q '10

                                                                                                                                             4Q '10

                                                                                                                                                      2Q '11

                                                                                                                                                               4Q '11

                                                                                                                                                                        2Q '12

                                                                                                                                                                                 4Q '12

                                                                                                                                                                                            2Q '13

                                                                                                                                                                                                     4Q '13

                                                                                                                                                                                                              2Q '14

                                                                                                                                                                                                                       4Q '14
 *For EM headline inflation, CPIs for 31 countries (listed in the footnotes of Exhibits 49-53) are                  Note: The regional aggregates are calculated by weighting country output gaps by their three-
 aggregated by their three-year moving average US$ GDP weights. For India, we use the WPI.                          year moving average US$ GDP weights.
 **For EM core inflation, core CPIs (defined as the CPI excluding food, energy, alcohol and                         *Average of Hodrick-Prescott filter and log-linear method estimates
 tobacco) for 23 countries (listed in the footnotes of Exhibits 49-53) are aggregated by their
 three-year moving average US$ GDP weights.                                                                         Source: Credit Suisse
 Source: Haver Analytics®, Credit Suisse.



         The run-rate of EM                           More importantly, the run-rate 8 of aggregate EM inflation was broadly unchanged in
      headline inflation was                          December after declining to its long-term average of 5.1% in November. This comes after a
                                                      period of sharp pick-up in the run-rate of EM headline inflation for three consecutive months
      broadly unchanged in
                                                      from a 40-month low of 3.9% in June to a 19-month high of 6.7% in September, on the back
   December, down notably                             of the surge in global food and energy prices (Exhibit 48). The latest data for December are
     from its recent peak in                          suggesting that the run-rate of CPI inflation is coming off in India, Korea, Mexico, Chile,
         September though                             Russia, Turkey and Israel. Meanwhile, the most notable increases in the run-rate of headline
                                                      inflation in H2 2012 were recorded in Brazil and South Africa (Exhibits 55-66).
                                                      The slowdown in the run-rate of aggregate EM headline inflation between
                                                      September and December was driven by the broad-based deceleration in food,
                                                      energy and core components. The pass-through to EM inflation from the global oil and
                                                      grain price surge during the summer months (Exhibits 67-68), which was notable mainly in
                                                      EEMEA and LatAm countries (Exhibits 52-54), petered out in Q4 2012.

             The run-rate of food                     In particular, the run-rate of EM’s food price inflation picked up modestly to 6.6% in
                                                      December from a three-year low of 5.3% in November mainly driven by the surge in
             price inflation in EM
                                                      food prices in China (Exhibit 48). However, food price inflation in EM outside of China
           (outside of China and                      and India continued to decline for the third consecutive month (Exhibit 49). It is worth
              India) continued to                     highlighting, however, that the food price developments exhibit variations across EM
                    slow down in                      regions. In LatAm and EEMEA, the run-rate of food price inflation declined notably in Q4
                  December after                      2012 to the lowest pace in the last six months after increasing in Q3 on the back of the
                                                      surge in global grain prices. However, in non-Japan Asia, the run-rate of food price
           peaking in September

                                                      7   CPI excluding food, energy, alcohol and tobacco for most EM countries. For exceptions, please see Exhibit 86 footnotes.
                                                      8     We calculate the run-rate of inflation as the annualized three-month percentage change in the deseasonalized index.



Global Inflation Watch                                                                                                                                                                                                            27
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  29 January 2013



                                                                                                                                           inflation picked up modestly after having troughed in November but it still remains subdued
                                                                                                                                           compared to other EM regions (Exhibits 70-72). We note that the run-rate of food price
                                                                                                                                           inflation has come off notably in Brazil, South Africa, Russia, Turkey, Hungary and Israel
                                                                                                                                           but it still remains relatively elevated in Brazil and South Africa, and it jumped in China
                                                                                                                                           towards the end of 2012 due to the particularly cold winter (Exhibits 73-84).

 Exhibit 48: EM CPI inflation                                                                                                                                                                                                                                            Exhibit 49: EM (ex-China and India) CPI inflation
 Annualized 3m % change (sa)                                                                                                                                                                                                                                             Annualized 3m % change (sa)

  18     09      09   09   09   09   09    09      10   10   10   10   10    10      10   10   10   10   10    10      11   11   11   11   11    11      11   11   11   11   11    11      12




                                                                                                                                                                                   Headline CPI*
                                                                                                                                                                                                12   12   12   12    12      12   12   12   12   12    12      13


                                                                                                                                                                                                                                                                    18    18     09      09   09   09   09   09    09      10   10   10   10   10    10      10   10   10   10   10    10      11   11   11   11   11    11      11   11   11   11   11    11      12   12   12




                                                                                                                                                                                                                                                                                                                                                                                                                                                                   Headline CPI*
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  12   12    12      12   12   12   12   12    12      13


                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            18

  15                                                                                                                                                                               Food                                                                             15    15                                                                                                                                                                                       Food                                                                     15
                                                                                                                                                                                   Core**                                                                                                                                                                                                                                                                          Core**
  12                                                                                                                                                                                                                                                                12    12                                                                                                                                                                                                                                                                12

    9                                                                                                                                                                                                                                                               9       9                                                                                                                                                                                                                                                               9

    6                                                                                                                                                                                                                                                               6       6                                                                                                                                                                                                                                                               6

    3                                                                                                                                                                                                                                                               3       3                                                                                                                                                                                                                                                               3

    0                                                                                                                                                                                                                                                               0       0                                                                                                                                                                                                                                                               0




                                                                                                                                                                                                                                                                                                                  Dec-09




                                                                                                                                                                                                                                                                                                                                                                                      Dec-10




                                                                                                                                                                                                                                                                                                                                                                                                                                                          Dec-11




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              Dec-12
                                                                                                                                                                                                                                                                                Jun-09




                                                                                                                                                                                                                                                                                                                                                    Jun-10




                                                                                                                                                                                                                                                                                                                                                                                                                        Jun-11




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            Jun-12
                                          Dec-09




                                                                                                              Dec-10




                                                                                                                                                                                  Dec-11




                                                                                                                                                                                                                                                      Dec-12
        Jun-09




                                                                            Jun-10




                                                                                                                                                Jun-11




                                                                                                                                                                                                                    Jun-12




 * For EM headline inflation, 31 countries’ (listed in the footnotes of Exhibits 49-53) CPIs (WPI                                                                                                                                                                        * For EM headline inflation, the same 31 countries’ CPIs are aggregated (as in Exhibits 49-53)
 for India) are aggregated by their three-year moving average US$ GDP weights. ** For EM                                                                                                                                                                                 excluding China and India. ** For EM core inflation, we use the same subset of EM countries
 core inflation, 23 countries’ core CPIs (CPI index excluding food, energy, beverages and                                                                                                                                                                                as in Exhibit 21 excluding India and China.
 tobacco) are aggregated by their three-year moving average US$ GDP weights.                                                                                                                                                                                             Source: Haver Analytics®, National Statistics Offices, Credit Suisse
 Source: Haver Analytics®, National Statistics Offices, Credit Suisse



          Core inflation remains                                                                                                           Despite the sharp fall in the run-rate of India’s and China’s core inflation to about nil,
            subdued in all of EM                                                                                                           the run-rate of EM core inflation remained broadly unchanged in December at 3.0%
          despite a recent pick-                                                                                                           after declining from a 17-month high of 4.4% in September. In the EM world outside of
                                                                                                                                           India and China, the run-rate of core inflation has been picking up since mid-2012 and
            up in the run-rate of
                                                                                                                                           reached an 11-month high of 4.6% in December from a five-year low of 3.6% in July
           Brazil’s core inflation                                                                                                         (Exhibits 48-49). This was driven by the acceleration in the run-rate of core inflation in
             closer to the upper                                                                                                           Latin America since mid-2012 despite the slowdown in the run-rate of core inflation in
          bound of the headline                                                                                                            EEMEA during the same period (Exhibits 52-54).
           inflation target range                                                                                                          Overall, however, core inflation dynamics remained well-behaved in all EM
                                                                                                                                           countries, as the run-rate of core inflation remained within the respective central
                                                                                                                                           banks’ headline inflation target ranges (Exhibits 52-66). It is worth highlighting that the
                                                                                                                                           run-rate of core inflation has been trending closer to the upper bound of the headline
                                                                                                                                           inflation target range only in Brazil in 4Q 2012 (Exhibit 58). The negative output gaps in
                                                                                                                                           most EM countries have continued to keep core inflation dynamics benign recently, in our
                                                                                                                                           view (Exhibit 47).

         China’s CPI inflation                                                                                                             The year-on-year headline CPI inflation in China picked up to a seven-month high of
                                                                                                                                           2.5% in December driven by the sharp increase in food price inflation, while the run-
       picked up recently due
                                                                                                                                           rate of China’s headline inflation jumped in December to 3.0% from its recent 40-
        to the impact on food                                                                                                              month low of about nil in mid-2012 (Exhibit 55). The run-rate of food price inflation
     inflation of cold weather                                                                                                             bounced sharply in December to a 15-month high of 8.5% due to relatively cold weather
       but the central bank is                                                                                                             as the average December temperature in China was the lowest in seven years (Exhibit 73).
        unlikely to respond to                                                                                                             We expect the year-on-year headline CPI inflation to pick up from 2.5% in December
             this by tightening                                                                                                            to 3.2% by mid-2012 and further to 3.9% by end-2013 due to the pick-up in pork
      monetary policy, in our                                                                                                              prices and some other agricultural goods in 2Q 2013 (Exhibit 85). According to our
                                                                                                                                           China economists, the increase in headline inflation would probably mean the easing
                           view
                                                                                                                                           window is closing, but current developments in inflation and real-side activities might not
                                                                                                                                           lead the PBoC to respond by tightening monetary policy.




Global Inflation Watch                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      28
                                                                                                                                               29 January 2013



                                                   Our economists expect year-on-year aggregate headline inflation in the EM world to
                                                   increase gradually through the current year to reach 6.0% by end-2013 from 5.0% in
                                                   December 2012 (Exhibits 46 and 85).

     Our economists expect                         In non-Japan Asia (excluding China and India), we expect year-on-year headline inflation
      year-on-year headline                        to pick up from 2.9% in December to 4.0% by end-2013. Meanwhile, we expect India’s
                                                   year-on-year headline inflation to decline to 6.0% by the end of 2013 from 7.2% in
        inflation to increase
                                                   December 2012.
    notably in Latin America
    and pick up modestly in                        In Latin America, we expect year-on-year headline inflation to increase notably from 8.1%
                                                   in December 2012 to about 10.0% by end-2013.
    NJA and EEMEA in 2013
                                                   In EEMEA, year-on-year headline inflation will pick up modestly from 5.5% in December-
                                                   2013 to 6.0% by mid-2012 and is set to remain range-bound at that level through end-
                                                   2013, according to our forecasts.
                                                   We expect the most notable increase in year-on-year headline inflation to be recorded in
                                                   Venezuela, Ukraine, Indonesia, Korea and Malaysia, while Singapore, India and Russia’s
                                                   headline inflation will decline the most by end-2013, according to our forecasts (Exhibit 51).

 Exhibit 50: Latest headline inflation in EM
 economies                                                                         Exhibit 51: Forecast change in headline inflation
 % year-on-year, December 2012                                                     Change in %yoy CPI inflation between end-2012 and end-2013 in pps (fcst)
  25                                                                         25     10                                                                        10

  20                                                                         20      8                                                                        8

  15                                                                         15
                                                                                     6                                                                        6

  10                                                                         10
                                                                                     4                                                                        4
    5                                                                        5
                                                                                     2                                                                        2
    0                                                                        0
                                                                                     0                                                                        0
           Kazakhstan




              Hungary




           Hong Kong
                Turkey




                   NJA




        Czech Republic
                  Israel




               Ukraine
            Venezuela


                 Russia




          South Africa


              Romania




            Philippines
            Singapore
             Indonesia




                  China




                 Korea
              Malaysia
             Argentina




              Thailand
                Mexico




             Colombia
               LATAM




                Poland


                Taiwan
                  Chile
                  Brazil

               EEMEA
                   India




                                                                                                 Israel




                                                                                               Turkey
                                                                                              Ukraine

                                                                                                Korea


                                                                                                 Chile




                                                                                               Taiwan




                                                                                             Hungary
                                                                                             Malaysia
                                                                                                 China




                                                                                          Kazakhstan




                                                                                         South Africa

                                                                                                Russia
                                                                                           Venezuela




                                                                                            Argentina




                                                                                          Czech Rep.
                                                                                          Hong Kong
                                                                                           Philippines


                                                                                             Thailand




                                                                                           Singapore
                                                                                               Poland




                                                                                               Mexico




                                                                                                 Brazil
                                                                                            Colombia



                                                                                             Romania




                                                                                                  India
                                                                                            Indonesia




   -5                                                                        -5
                                                                                    -2                                                                        -2
 -10                                                                         -10


 Source: Haver Analytics®, National Statistics Offices, Credit Suisse              Source: Credit Suisse



                                                   Large negative output gaps and benign core inflation dynamics in most EM
                                                   economies suggest to us that the EM central banks will maintain their
                                                   accommodative stance in 2013. We expect policy rates to remain stable or be lowered in
                                                   all EM countries in 2013 with the exception of Indonesia and Colombia where we expect a
                                                   125bps and a 50bps hike by end-2013, respectively.




Global Inflation Watch                                                                                                                                        29
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               29 January 2013




Exhibit 52: Non-Japan Asia                                                                                                                                                                                                                                                         Exhibit 53: Latin America                                                                                                                                                                                                                                                                                                                                                                              Exhibit 54: Emerging Europe, Middle
CPI inflation*                                                                                                                                                                                                                                                                     CPI inflation*                                                                                                                                                                                                                                                                                                                                                                                         East and Africa CPI inflation*
Annualized 3m % change (sa)                                                                                                                                                                                                                                                        Annualized 3m % change (sa)                                                                                                                                                                                                                                                                                                                                                                            Annualized 3m % change (sa)

 15    08    09    09    09    09    09    09    09    09    09   09   09   09   10   10   10   10   10   10   10

                                                                                                                    Headline CPI*
                                                                                                                    10   10   10   10   10   11   11   11   11   11   11   11   11   11   11   11   11   12   12   12   12   12   12   12   12   12   12    12    12    13


                                                                                                                                                                                                                                                                              15      15     08        09        09        09        09        09        09        09        09        09        09    09    09    10    10    10    10    10    10
                                                                                                                                                                                                                                                                                                                                                                                                                                                       Headline CPI*
                                                                                                                                                                                                                                                                                                                                                                                                                                                       10    10    10    10    10    10    11    11    11    11    11    11    11     11    11    11    11        11        12        12        12        12            12        12        12    12    12    12    12    12    13


                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     15    15    08   09   09   09   09   09   09   09   09   09   09   09    09    10    10    10    10    10

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  Headline CPI*
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  10    10    10    10    10    10    10    11    11    11    11    11        11        11        11    11       11    11       11    12       12    12       12    12        12        12        12        12        12    12    12    13


                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  15
                                                                                                                    Core**                                                                                                                                                                                                                                                                                                                             Core**                                                                                                                                                                                                                                                                                                                                     Core**
 10                                                                                                                                                                                                                                                                           10      10                                                                                                                                                                                                                                                                                                                                                                                             10    10                                                                                                                                                                                                                                                                                                                                                     10

   5                                                                                                                                                                                                                                                                          5        5                                                                                                                                                                                                                                                                                                                                                                                             5       5                                                                                                                                                                                                                                                                                                                                                    5

   0                                                                                                                                                                                                                                                                          0        0                                                                                                                                                                                                                                                                                                                                                                                             0       0                                                                                                                                                                                                                                                                                                                                                    0

  -5                                                                                                                                                                                                                                        -5                                        -5                                                                                                                                                                                                                                                                                                                                                         -5                                         -5                                                                                                                                                                                                                                                                                               -5
  Dec-08                                                                Apr-10                                                                         Aug-11                                                                          Dec-12                                         Dec-08                                                                                                            Apr-10                                                                                         Aug-11                                                                                                                               Dec-12                                          Dec-08                                                       Apr-10                                                                                         Aug-11                                                                                                                          Dec-12

* Regional aggregate CPI includes 11 countries’ CPIs (WPI for                                                                                                                                                                                                                      * Regional aggregate CPI includes 8 countries’ CPIs -                                                                                                                                                                                                                                                                                                                                                  * Regional aggregate CPI includes 12 countries’ CPIs -
India) - China, Hong Kong, India, Indonesia, Korea, Malaysia,                                                                                                                                                                                                                      Argentina, Brazil, Chile, Colombia, Mexico, Panama, Peru                                                                                                                                                                                                                                                                                                                                               Czech Republic, Egypt, Hungary, Israel, Kazakhstan, Nigeria,
Philippines, Singapore, Taiwan, Thailand and Vietnam weighted                                                                                                                                                                                                                      and Venezuela weighted by their three-year moving average                                                                                                                                                                                                                                                                                                                                              Poland, Romania, Russia, South Africa, Turkey and Ukraine
by their three-year moving average US$ GDPs.                                                                                                                                                                                                                                       US$ GDPs.                                                                                                                                                                                                                                                                                                                                                                                              weighted by their three-year moving average US$ GDPs.
** Regional core CPI includes only eight NJA countries -                                                                                                                                                                                                                           ** Core inflation excludes food, energy, beverages and tobacco;                                                                                                                                                                                                                                                                                                                                        ** Regional core CPI includes only for ten EEMEA countries -
China, Hong Kong, India, Korea, Philippines, Singapore,                                                                                                                                                                                                                            only for five Latin American countries listed above - Brazil, Chile,                                                                                                                                                                                                                                                                                                                                   Czech Republic, Hungary, Israel, Kazakhstan, Nigeria,
Taiwan and Thailand.                                                                                                                                                                                                                                                               Mexico, Peru and Venezuela.                                                                                                                                                                                                                                                                                                                                                                            Poland, Romania, Russia, South Africa and Turkey.
Source: Haver Analytics®, Statistics Offices, Credit Suisse                                                                                                                                                                                                                        Source: Haver Analytics®, Statistics Offices, Credit Suisse                                                                                                                                                                                                                                                                                                                                            Source: Haver Analytics®, Statistics Offices, Credit Suisse



Exhibit 55: China’s CPI inflation                                                                                                                                                                                                                                                  Exhibit 56: India’s WPI inflation                                                                                                                                                                                                                                                                                                                                                                      Exhibit 57: Korea’s CPI inflation
Annualized 3m % change (sa)                                                                                                                                                                                                                                                        Annualized 3m % change (sa)                                                                                                                                                                                                                                                                                                                                                                            Annualized 3m % change (sa)

 15    08    09    09    09    09    09    09    09    09    09   09   09   09   10   10   10   10   10   10   10

                                                                                                                    Headline CPI
                                                                                                                    10   10   10   10   10   11   11   11   11   11   11   11   11   11   11   11   11   12   12   12   12   12   12   12   12   12    12    12    12    13


                                                                                                                                                                                                                                                                              15      25          08        09        09        09        09        09        09    09        09        09        09    09    09    10    10   10    10    10    10    10    10   Headline WPI
                                                                                                                                                                                                                                                                                                                                                                                                                                                                   10    10    10    10    11    11    11    11    11    11    11    11    11    11    11        11        12        12        12        12        12        12        12    12    12    12    12    12    13


                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     25      9   08   09   09   09   09   09   09   09   09   09   09    09    09    10    10    10    10    10

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  Headline CPI
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   10    10    10    10    10    10    10    11    11    11    11        11        11        11        11    11       11    11       11    12       12    12       12        12        12        12        12        12    12    12    12    13


                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  9
                                                                                                                                                                                                                                                                                                                                                                                                                                                                  Core*
 12                                                                                                                 Core*                                                                                                                                                     12                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  Core*
                                                                                                                                                                                                                                                                                      20                                                                                                                                                                          Mfg core                                                                                                                                                                                                           20
   9                                                                                                                                                                                                                                                                          9                                                                                                                                                                                                                                                                                                                                                                                                              6                                                                                                                                                                                                                                                                                                                                                    6
                                                                                                                                                                                                                                                                                      15                                                                                                                                                                                                                                                                                                                                                                                             15
   6                                                                                                                                                                                                                                                                          6       10                                                                                                                                                                                                                                                                                                                                                                                             10
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             3                                                                                                                                                                                                                                                                                                                                                    3
   3                                                                                                                                                                                                                                                                          3         5                                                                                                                                                                                                                                                                                                                                                                                            5
   0                                                                                                                                                                                                                                                                          0         0                                                                                                                                                                                                                                                                                                                                                                                            0       0                                                                                                                                                                                                                                                                                                                                                    0
  -3                                                                                                                                                                                                                                                                          -3       -5                                                                                                                                                                                                                                                                                                                                                                                            -5
  -6                                                                                                                                                                                                                                        -6                                       -10                                                                                                                                                                                                                                                                                                                                                -10                                                 -3                                                                                                                                                                                                                                                                                                        -3
  Dec-08                                                                Apr-10                                                                         Aug-11                                                                          Dec-12                                          Dec-08                                                                                                               Apr-10                                                                                     Aug-11                                                                                                                      Dec-12                                                   Dec-08                                                           Apr-10                                                                                          Aug-11                                                                                                                              Dec-12

*Index as calculated by Credit Suisse: excludes food and                                                                                                                                                                                                                           *Index calculated by Credit Suisse: based on the WPI                                                                                                                                                                                                                                                                                                                                                    *Index as calculated by Credit Suisse: excludes food and
energy.                                                                                                                                                                                                                                                                            excluding primary food articles, manufactured food products,                                                                                                                                                                                                                                                                                                                                           non-alcoholic beverages, alcohol and tobacco, ‘electricity,
                                                                                                                                                                                                                                                                                   fuel and power, beverages and tobacco.                                                                                                                                                                                                                                                                                                                                                                 gas and other fuels’ and fuels for transport equipment.
Source: Haver Analytics®, National Bureau of Statistics,
                                                                                                                                                                                                                                                                                   **Based on the mfg WPI excluding mfg food products.
Credit Suisse                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             Source: Haver Analytics®, National Statistics Office, Credit
                                                                                                                                                                                                                                                                                   Source: Haver Analytics®, Credit Suisse                                                                                                                                                                                                                                                                                                                                                                Suisse



Exhibit 58: Brazil’s CPI inflation                                                                                                                                                                                                                                                 Exhibit 59: Mexico’s CPI inflation                                                                                                                                                                                                                                                                                                                                                                     Exhibit 60: Chile’s CPI inflation
Annualized 3m % change (sa)                                                                                                                                                                                                                                                        Annualized 3m % change (sa)                                                                                                                                                                                                                                                                                                                                                                            Annualized 3m % change (sa)

  12    08    09    09    09    09    09    09    09    09   09   09   09   09   10   10   10   10   10

                                                                                                           Headline CPI
                                                                                                          10   10   10   10   10   10   10   11   11   11   11   11   11   11   11   11   11   11   11   12   12   12   12   12   12   12   12   12   12    12    12    13


                                                                                                                                                                                                                                                                              12     12     08    09        09        09        09        09        09        09        09        09        09    09    09    10    10    10    10    10    10

                                                                                                                                                                                                                                                                                                                                                                                                                                                 Headline CPI
                                                                                                                                                                                                                                                                                                                                                                                                                                                  10    10    10    10    10    10    11    11    11    11    11    11    11    11    11    11    11        11        12        12        12        12        12        12        12        12    12    12    12    12    13


                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     12    12    08   09   09   09   09   09   09   09   09   09   09   09    09    10    10    10    10    10

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  Headline CPI
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  10    10    10    10    10    10    10    11    11    11    11    11        11        11        11        11    11       11    11       12    12       12    12       12        12        12        12        12    12    12    12    13


                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  12
                                                                                                           Core*                                                                                                                                                                                                                                                                                                                                 Core*                                                                                                                                                                                                                                                                                                                                            Core*
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             9                                                                                                                                                                                                                                                                                                                                                    9
   9                                                                                                                                                                                                                                                                          9        9                                                                                                                                                                                                                                                                                                                                                                                             9
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             6                                                                                                                                                                                                                                                                                                                                                    6
   6                                                                                                                                                                                                                                                                          6        6                                                                                                                                                                                                                                                                                                                                                                                             6       3                                                                                                                                                                                                                                                                                                                                                    3
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             0                                                                                                                                                                                                                                                                                                                                                    0
   3                                                                                                                                                                                                                                                                          3        3                                                                                                                                                                                                                                                                                                                                                                                             3
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            -3                                                                                                                                                                                                                                                                                                                                                    -3
   0                                                                                                                                                                                                                                        0                                         0                                                                                                                                                                                                                                                                                                                                                0                                                    -6                                                                                                                                                                                                                                                                                                   -6
   Dec-08                                                                   Apr-10                                                                     Aug-11                                                                          Dec-12                                         Dec-08                                                                                                          Apr-10                                                                                      Aug-11                                                                                                                          Dec-12                                                    Dec-08                                                       Apr-10                                                                                         Aug-11                                                                                                                              Dec-12

*Index calculated by Credit Suisse: excludes food and                                                                                                                                                                                                                              *Index calculated by Credit Suisse: excludes food and                                                                                                                                                                                                                                                                                                                                                   *Index calculated by Eurostat: excludes food, energy,
beverages, fuels and energy and fuels for personal transport.                                                                                                                                                                                                                      beverages, tobacco, electricity and fuels.                                                                                                                                                                                                                                                                                                                                                             alcohol and tobacco.
Source: Haver Analytics®, IBGE, Credit Suisse                                                                                                                                                                                                                                      Source: Haver Analytics®, Banxico, Credit Suisse                                                                                                                                                                                                                                                                                                                                                       Source: Haver Analytics®, NBS, Credit Suisse




Global Inflation Watch                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 30
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                29 January 2013




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               Exhibit 63: South Africa’s CPI
Exhibit 61: Russia’s CPI inflation                                                                                                                                                                                                                                      Exhibit 62: Turkey’s CPI inflation                                                                                                                                                                                                                                     inflation
Annualized 3m % change (sa)                                                                                                                                                                                                                                             Annualized 3m % change (sa)                                                                                                                                                                                                                                            Annualized 3m % change (sa)

 20                                                                                                                        Headline CPI                                                                                                                           20      25    08   09   09   09   09   09   09   09   09   09   09   09   09   10   10
                                                                                                                                                                                                                                                                                                                                                           Headline CPI
                                                                                                                                                                                                                                                                                                                                                           10   10   10   10   10   10   10   10   10   10   11   11   11   11   11   11   11   11   11   11   11   11   12   12   12   12   12   12   12   12   12   12   12   12   13


                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          25    12     08   09   09   09   09   09   09   09   09   09   09   09   09   10   10   10   10
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            Headline CPI
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            10   10   10   10    10    10    10    10    11    11    11    11    11    11    11    11        11        11        11        11    12    12    12    12    12    12    12    12    12    12    12   12   13


                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            12
                                                                                                                                                                                                                                                                                                                                                           Core*                                                                                                                                                                                                                                                                            Core*
                                                                                                                           Core*                                                                                                                                          20                                                                                                                                                                                                                                                              20
 15                                                                                                                                                                                                                                                               15
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  9                                                                                                                                                                                                                                                                                                         9
                                                                                                                                                                                                                                                                          15                                                                                                                                                                                                                                                              15
 10                                                                                                                                                                                                                                                               10
                                                                                                                                                                                                                                                                          10                                                                                                                                                                                                                                                              10      6                                                                                                                                                                                                                                                                                                         6
   5                                                                                                                                                                                                                                                              5
                                                                                                                                                                                                                                                                            5                                                                                                                                                                                                                                                             5
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  3                                                                                                                                                                                                                                                                                                         3
   0                                                                                                                                                                                                                                                              0         0                                                                                                                                                                                                                                                             0

  -5                                                                                                                                                                                                                                -5                                     -5                                                                                                                                                                                                                               -5                                   0                                                                                                                                                                                                                                                                        0
  Dec-08                                                       Apr-10                                                                          Aug-11                                                                          Dec-12                                      Dec-08                                                       Apr-10                                                                         Aug-11                                                                          Dec-12                                    Dec-08                                                        Apr-10                                                                                Aug-11                                                                                                          Dec-12

*Index calculated by Credit Suisse: excludes food, alcohol,                                                                                                                                                                                                             *Index excluding food, energy, alcohol, tobacco and gold.                                                                                                                                                                                                              *Index calculated by Credit Suisse: excludes ‘food and non-
tobacco, gasoline and utilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               alcoholic beverages’, ‘electricity and other fuels’, petrol,
                                                                                                                                                                                                                                                                        Source: Haver Analytics®, Turkstat, Credit Suisse
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               alcohol and tobacco.
Source: Haver Analytics®, Rosstat, Credit Suisse
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               Source: Haver Analytics®, Statistics S. Africa, Credit Suisse



Exhibit 64: Poland’s CPI inflation                                                                                                                                                                                                                                      Exhibit 65: Hungary’s CPI inflation                                                                                                                                                                                                                                    Exhibit 66: Israel’s CPI inflation
Annualized 3m % change (sa)                                                                                                                                                                                                                                             Annualized 3m % change (sa)                                                                                                                                                                                                                                            Annualized 3m % change (sa)

   9    08   09   09   09   09   09   09   09   09   09   09   09   09   10   10   10   10

                                                                                             Headline CPI
                                                                                             10   10   10   10   10   10   10   10   11   11   11   11   11   11   11   11   11   11   11   11   12   12   12   12   12   12   12   12   12   12   12   12   13


                                                                                                                                                                                                                                                                  9        15                                                                                                  Headline CPI                                                                                                                                               15       9        08   09   09   09   09   09   09   09   09   09   09   09   09   10   10   10   10   10
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      Headline CPI
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      10   10   10    10    10    10    10    11    11    11    11    11    11    11    11        11        11        11    11    12    12    12    12    12    12    12    12    12    12   12   12   13


                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            9
                                                                                                                                                                                                                                                                                                                                                                               Core*                                                                                                                                                                                                                                                                  Core*
                                                                                             Core*                                                                                                                                                                         12                                                                                                                                                                                                                                                             12
   6                                                                                                                                                                                                                                                              6                                                                                                                                                                                                                                                                                6                                                                                                                                                                                                                                                                                                        6
                                                                                                                                                                                                                                                                            9                                                                                                                                                                                                                                                             9

   3                                                                                                                                                                                                                                                              3         6                                                                                                                                                                                                                                                             6        3                                                                                                                                                                                                                                                                                                        3
                                                                                                                                                                                                                                                                            3                                                                                                                                                                                                                                                             3
   0                                                                                                                                                                                                                                                              0                                                                                                                                                                                                                                                                                0                                                                                                                                                                                                                                                                                                        0
                                                                                                                                                                                                                                                                            0                                                                                                                                                                                                                                                             0

  -3                                                                                                                                                                                                                                -3                                     -3                                                                                                                                                                                                                               -3                                    -3                                                                                                                                                                                                                                                                       -3
  Dec-08                                                        Apr-10                                                                         Aug-11                                                                          Dec-12                                      Dec-08                                                           Apr-10                                                                     Aug-11                                                                          Dec-12                                     Dec-08                                                            Apr-10                                                                                Aug-11                                                                                                      Dec-12

*Index calculated by Eurostat: excludes food, energy, alcohol                                                                                                                                                                                                           *Index calculated by Eurostat: excludes food, energy, alcohol                                                                                                                                                                                                          *Index as calculated by Credit Suisse: excludes food,
and tobacco.                                                                                                                                                                                                                                                            and tobacco.                                                                                                                                                                                                                                                           energy, alcohol and tobacco.
Source: Haver Analytics®, Central Statistical Office, Eurostat,                                                                                                                                                                                                         Source: Haver Analytics®, Central Statistical Office, Eurostat,                                                                                                                                                                                                        Source: Haver Analytics®, Central Bureau of Statistics,
Credit Suisse                                                                                                                                                                                                                                                           Credit Suisse                                                                                                                                                                                                                                                          Credit Suisse



Exhibit 67: World oil prices                                                                                                                                                                                                                                            Exhibit 68: World grain prices                                                                                                                                                                                                                                         Exhibit 69: World metals prices
Brent: level and % yoy change in the US$ price                                                                                                                                                                                                                          Grain price index*: level (2005=100) and % yoy                                                                                                                                                                                                                         LMEX US$ price index for metals: level (2005=100)
                                                                                                                                                                                                                                                                        change in the US$ price                                                                                                                                                                                                                                                and % yoy change

 150                                                                                                   US$/bbl (left axis)                                                                                                                                        120    320                                                                                    2005=100 (left axis)                                                                                                                                                      90     260                                                                                   2005=100 (left axis)                                                                                                                                                                                                 120
                                                                                                       %yoy (right axis)                                                                                                                                                                                                                                        %yoy (right axis)                                                                                                                                                                                                                                                      %yoy (right axis)
                                                                                                                                                                                                                                                                  90     290                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                90
 125                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      60     220
                                                                                                                                                                                                                                                                         260                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                60
                                                                                                                                                                                                                                                                  60
 100                                                                                                                                                                                                                                                                     230                                                                                                                                                                                                                                                              30     180                                                                                                                                                                                                                                                                                                        30
                                                                                                                                                                                                                                                                  30
                                                                                                                                                                                                                                                                         200                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                0
   75                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     0      140
                                                                                                                                                                                                                                                                  0      170                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                -30
   50                                                                                                                                                                                                                  -30                                               140                                                                                                                                                                                                                   -30                                               100                                                                                                                                                                                                                                                      -60
  28-Jan-10                                                                                       28-Jul-11                                                                                                     28-Jan-13                                                 28-Jan-10                                                                                   28-Jul-11                                                                                                         28-Jan-13                                                 28-Jan-10                                                                                       28-Jul-11                                                                                                                                        28-Jan-13

Source: the BLOOMBERG PROFESSIONAL™ service                                                                                                                                                                                                                             * Index that attributes equal weight to US wholesale prices for                                                                                                                                                                                                        Source: the BLOOMBERG PROFESSIONAL™ service
                                                                                                                                                                                                                                                                        wheat, corn, soy and rice prices measured in US$
                                                                                                                                                                                                                                                                        Source: the BLOOMBERG PROFESSIONAL™ service




Global Inflation Watch                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          31
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             29 January 2013




Exhibit 70: Non-Japan Asia                                                                                                                                                                                                                    Exhibit 71: Latin America                                                                                                                                                                                                                         Exhibit 72: EEMEA food price
food price inflation*                                                                                                                                                                                                                         food price inflation*                                                                                                                                                                                                                             inflation*
                                                                 World grain prices (%yoy, left)                                                                                                                                                                                                                 World grain prices (%yoy, left)                                                                                                                                                                                                                World grain prices (%yoy, left)
120     07 07 07 07 07 07 07 07 07 07 07 07 08 08 08 08 08 08 08 08 08 08 08 08 09 09 09 09 09 09 09 09 09 09 09 09 10 10 10 10 10 10 10 10 10 10 10 10 11 11 11 11 11 11 11 11 11 11 11 11 12 12 12 12 12 12 12 12 12 12 12 12 13 13




                                                                 Food CPI (%yoy)               24                                                                                                                                             120                                                                                               24
                                                                                                                                                                                                                                                      07 07 07 07 07 07 07 07 07 07 07 07 08 08 08 08 08 08 08 08 08 08 08 08 09 09 09 09 09 09 09 09 09 09 09 09 10 10 10 10 10 10 10 10 10 10 10 10 11 11 11 11 11 11 11 11 11 11 11 11 12 12 12 1 2 12 12 12 12 12 12 12 12 13 13




                                                                                                                                                                                                                                                                                                                 Food CPI (%yoy)                                                                                                                                                                120                                                                                           28
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        07 07 07 07 07 07 07 07 07 07 07 07 08 08 08 08 08 08 08 08 08 08 08 08 09 09 09 09 09 09 09 09 09 09 09 09 10 10 10 10 10 10 10 10 10 10 10 10 11 11 11 11 11 11 11 11 11 11 11 11 12 12 12 1 2 12 12 12 12 12 12 12 12 13 13




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                Food CPI (%yoy)
                                                                 Food CPI (%, run-rate)        20                                                                                                                                               90                                                               Food CPI (%, run-rate)         20                                                                                                                                                                                                              Food CPI (%, run-rate)        24
  90                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              90
                                                                                                                                                                                                                                         16     60                                                                                                                                                                                                                                         16                                                                                                                                                                                                                                            20
  60                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              60
                                                                                                                                                                                                                                         12                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              16
  30                                                                                                                                                                                                                                            30                                                                                                                                                                                                                                         12     30
                                                                                                                                                                                                                                         8                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               12
   0                                                                                                                                                                                                                                              0                                                                                                                                                                                                                                        8        0
                                                                                                                                                                                                                                         4                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               8
 -30                                                                                                                                                                                                                                     0     -30                                                                                                                                                                                                                                         4     -30                                                                                                                                                                                                                                     4
 -60                                                                                                                                                                                                                -4                         -60                                                                                                                                                                                                                   0                           -60                                                                                                                                                                                                              0
   Jan-07                                                 Jan-09                                                                     Jan-11                                                                    Jan-13                            Jan-07                                                  Jan-09                                                                     Jan-11                                                                      Jan-13                             Jan-07                                                 Jan-09                                                                    Jan-11                                                                   Jan-13

* 11 countries CPIs are aggregated by their three-year moving                                                                                                                                                                                 * The 8 countries that are taken into account and weighted by                                                                                                                                                                                     * The 12 countries that are taken into account and weighted by
average US$ GDP weights are China, Hong Kong, India,                                                                                                                                                                                          their three-year moving average US$ GDP weights are                                                                                                                                                                                               their three-year moving average US$ GDP weights are Czech
Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan,                                                                                                                                                                                   Argentina, Brazil, Chile, Colombia, Mexico, Panama, Peru                                                                                                                                                                                          Republic, Egypt, Hungary, Israel, Kazakhstan, Nigeria, Poland,
Thailand and Vietnam. For India, WPI is used.                                                                                                                                                                                                 and Venezuela.                                                                                                                                                                                                                                    Romania, Russia, South Africa, Turkey and Ukraine.
Source: Haver Analytics®, Statistics Offices, Credit Suisse                                                                                                                                                                                   Source: Haver Analytics®, Statistics Offices, Credit Suisse                                                                                                                                                                                       Source: Haver Analytics®, Statistics Offices, Credit Suisse



Exhibit 73: China’s food price                                                                                                                                                                                                                Exhibit 74: India’s food price                                                                                                                                                                                                                    Exhibit 75: Korea’s food price
inflation                                                                                                                                                                                                                                     inflation                                                                                                                                                                                                                                         inflation
                                                          World grain prices (%yoy, left)                                                                                                                                                                                                                   World grain prices (%yoy, left)                                                                                                                                                                                                               World grain prices (%yoy, left)
120                                                       Food CPI (%yoy)                 42
        07 07 07 07 07 07 07 07 07 07 07 07 08 08 08 08 08 08 08 08 08 08 08 08 09 09 09 09 09 09 09 09 09 09 09 09 10 10 10 10 10 10 10 10 10 10 10 10 11 11 11 11 11 11 11 11 11 11 11 11 12 12 12 1 2 12 12 12 12 12 12 12 12 13 13


                                                                                                                                                                                                                                               120                                                                                          36
                                                                                                                                                                                                                                                          07 07 07 07 07 07 07 07 07 07 07 07 08 08 08 08 08 08 08 08 08 08 08 08 09 09 09 09 09 09 09 09 09 09 09 09 10 10 10 10 10 10 10 10 10 10 10 10 11 11 11 11 11 11 11 11 11 11 11 11 12 12 12 1 2 12 12 12 12 12 12 12 12 13 13




                                                                                                                                                                                                                                                                                                            Food CPI (%yoy)                                                                                                                                                                     120                                                                                       30
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        07 07 07 07 07 07 07 07 07 07 07 07 08 08 08 08 08 08 08 08 08 08 08 08 09 09 09 09 09 09 09 09 09 09 09 09 10 10 10 10 10 10 10 10 10 10 10 10 11 11 11 11 11 11 11 11 11 11 11 11 12 12 12 1 2 12 12 12 12 12 12 12 12 13 13




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          Food CPI (%yoy)
  90                                                      Food CPI (%, run-rate)          36                                                                                                                                                     90                                                         Food CPI (%, run-rate)          30                                                                                                                                                    90                                                      Food CPI (%, run-rate)          25
                                                                                                                                                                                                                 30                                                                                                                                                                                                                                                                        24                                                                                                                                                                                                                                            20
  60                                                                                                                                                                                                             24                              60                                                                                                                                                                                                                                               60
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           18                                                                                                                                                                                                                                            15
  30                                                                                                                                                                                                             18                              30                                                                                                                                                                                                                                               30
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           12                                                                                                                                                                                                                                            10
    0                                                                                                                                                                                                            12                               0                                                                                                                                                                                                                                                 0
                                                                                                                                                                                                                 6                                                                                                                                                                                                                                                                         6                                                                                                                                                                                                                                             5
 -30                                                                                                                                                                                                             0                              -30                                                                                                                                                                                                                                        0     -30                                                                                                                                                                                                                                     0
 -60                                                                                                                                                                                                             -6                             -60                                                                                                                                                                                                                -6                            -60                                                                                                                                                                                                               -5
   Jan-07                                                 Jan-09                                                                   Jan-11                                                                   Jan-13                                Jan-07                                                    Jan-09                                                                   Jan-11                                                                   Jan-13                               Jan-07                                                 Jan-09                                                                    Jan-11                                                                    Jan-13

Source: Haver Analytics®, National Bureau of Statistics,                                                                                                                                                                                      Source: Haver Analytics®, Ministry of Commerce and Industry,                                                                                                                                                                                      Source: Haver Analytics®, National Statistics Office, Credit
Credit Suisse                                                                                                                                                                                                                                 Credit Suisse                                                                                                                                                                                                                                     Suisse



Exhibit 76: Brazil’s food price                                                                                                                                                                                                               Exhibit 77: Mexico’s food price                                                                                                                                                                                                                   Exhibit 78: Chile’s food price
inflation                                                                                                                                                                                                                                     inflation                                                                                                                                                                                                                                         inflation
                                                               World grain prices (%yoy, left)                                                                                                                                                                                                                   World grain prices (%yoy, left)                                                                                                                                                                                                               World grain prices (%yoy, left)
120                                                            Food CPI (%yoy)               28
        07 07 07 07 07 07 07 07 07 07 07 07 08 08 08 08 08 08 08 08 08 08 08 08 09 09 09 09 09 09 09 09 09 09 09 09 10 10 10 10 10 10 10 10 10 10 10 10 11 11 11 11 11 11 11 11 11 11 11 11 12 12 12 1 2 12 12 12 12 12 12 12 12 13 13


                                                                                                                                                                                                                                               120        07 07 07 07 07 07 07 07 07 07 07 07 08 08 08 08 08 08 08 08 08 08 08 08 09 09 09 09 09 09 09 09 09 09 09 09 10 10 10 10 10 10 10 10 10 10 10 10 11 11 11 11 11 11 11 11 11 11 11 11 12 12 12 1 2 12 12 12 12 12 12 12 12 13 13




                                                                                                                                                                                                                                                                                                                 Food CPI (%yoy)               24                                                                                                                                               120     07 07 07 07 07 07 07 07 07 07 07 07 08 08 08 08 08 08 08 08 08 08 08 08 09 09 09 09 09 09 09 09 09 09 09 09 10 10 10 10 10 10 10 10 10 10 10 10 11 11 11 11 11 11 11 11 11 11 11 11 12 12 12 1 2 12 12 12 12 12 12 12 12 13 13




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               Food CPI (%yoy)               32
                                                               Food CPI (%, run-rate)        24                                                                                                                                                                                                                  Food CPI (%, run-rate)                                                                                                                                                                                                                        Food CPI (%, run-rate)
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           18                                                                                                                                                                                                                                            24
  80                                                                                                                                                                                                             20                              80                                                                                                                                                                                                                                               80
                                                                                                                                                                                                                 16                                                                                                                                                                                                                                                                        12                                                                                                                                                                                                                                            16
  40                                                                                                                                                                                                             12                              40                                                                                                                                                                                                                                               40
                                                                                                                                                                                                                 8                                                                                                                                                                                                                                                                         6                                                                                                                                                                                                                                             8
    0                                                                                                                                                                                                            4                                0                                                                                                                                                                                                                                                0
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           0                                                                                                                                                                                                                                             0
                                                                                                                                                                                                                 0
 -40                                                                                                                                                                                                             -4                             -40                                                                                                                                                                                                                -6                            -40                                                                                                                                                                                                             -8
   Jan-07                                                 Jan-09                                                                   Jan-11                                                                   Jan-13                                Jan-07                                                    Jan-09                                                                   Jan-11                                                                   Jan-13                               Jan-07                                                Jan-09                                                                    Jan-11                                                                   Jan-13

Source: Haver Analytics®, IBGE, Credit Suisse                                                                                                                                                                                                 Source: Haver Analytics®, Banxico, Credit Suisse                                                                                                                                                                                                  Source: Haver Analytics®, NBS, Credit Suisse




Global Inflation Watch                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       32
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          29 January 2013




Exhibit 79: Russia’s food price                                                                                                                                                                                                              Exhibit 80: Turkey’s food price                                                                                                                                                                                                               Exhibit 81: South Africa’s food
inflation                                                                                                                                                                                                                                    inflation                                                                                                                                                                                                                                     price inflation
                                                               World grain prices (%yoy, left)                                                                                                                                                                                                               World grain prices (%yoy, left)                                                                                                                                                                                                               Maize price (%yoy, left)
120     07 07 07 07 07 07 07 07 07 07 07 07 08 08 08 08 08 08 08 08 08 08 08 08 09 09 09 09 09 09 09 09 09 09 09 09 10 10 10 10 10 10 10 10 10 10 10 10 11 11 11 11 11 11 11 11 11 11 11 11 12 12 12 12 12 12 12 12 12 12 12 12 13 13




                                                               Food CPI (%yoy)               36                                                                                                                                               120                                                            Food CPI (%yoy)               42
                                                                                                                                                                                                                                                      07 07 07 07 07 07 07 07 07 07 07 07 08 08 08 08 08 08 08 08 08 08 08 08 09 09 09 09 09 09 09 09 09 09 09 09 10 10 10 10 10 10 10 10 10 10 10 10 11 11 11 11 11 11 11 11 11 11 11 11 12 12 12 12 12 12 12 12 12 12 12 12 13 13


                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           100                                                                                                                                                                                                               28
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  07 07 07 07 07 07 07 07 07 07 07 07 08 08 08 08 08 08 08 08 08 08 08 08 09 09 09 09 09 09 09 09 09 09 09 09 10 10 10 10 10 10 10 10 10 10 10 10 11 11 11 11 11 11 11 11 11 11 11 11 12 12 12 12 12 12 12 12 12 12 12 12 13 13




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           Food CPI (%yoy)
                                                               Food CPI (%, run-rate)        30                                                                                                                                                                                                              Food CPI (%, run-rate)        36                                                                                                                                               80                                                                                                                                                                                                               24
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           Food CPI (%, run-rate)
  80                                                                                                                                                                                                                                            80                                                                                                                                                                                                              30                                                                                                                                                                                                                                           20
                                                                                                                                                                                                                                        24                                                                                                                                                                                                                                                  60
                                                                                                                                                                                                                                                                                                                                                                                                                                                                24                                                                                                                                                                                                                                           16
                                                                                                                                                                                                                                        18                                                                                                                                                                                                                      18                          40
  40                                                                                                                                                                                                                                            40                                                                                                                                                                                                                                                                                                                                                                                                                                                           12
                                                                                                                                                                                                                                        12                                                                                                                                                                                                                      12                          20
                                                                                                                                                                                                                                                                                                                                                                                                                                                                6                                                                                                                                                                                                                                            8
   0                                                                                                                                                                                                                                    6        0                                                                                                                                                                                                                                            0                                                                                                                                                                                                              4
                                                                                                                                                                                                                                                                                                                                                                                                                                                                0
                                                                                                                                                                                                                                        0                                                                                                                                                                                                                       -6                         -20                                                                                                                                                                                                               0
 -40                                                                                                                                                                                                            -6                             -40                                                                                                                                                                                                              -12                        -40                                                                                                                                                                                                               -4
   Jan-07                                                Jan-09                                                                   Jan-11                                                                   Jan-13                                Jan-07                                                 Jan-09                                                                   Jan-11                                                                    Jan-13                            Jan-07                                                 Jan-09                                                                    Jan-11                                                                    Jan-13

Source: Haver Analytics®, Rosstat, Credit Suisse                                                                                                                                                                                             Source: Haver Analytics®, Turkstat, Credit Suisse                                                                                                                                                                                             Source: Haver Analytics®, Statistics S. Africa, Credit Suisse



Exhibit 82: Poland’s food price                                                                                                                                                                                                              Exhibit 83: Hungary’s food price                                                                                                                                                                                                              Exhibit 84: Israel’s food price
inflation                                                                                                                                                                                                                                    inflation                                                                                                                                                                                                                                     inflation
                                                               World grain prices (%yoy, left)                                                                                                                                                                                                               World grain prices (%yoy, left)                                                                                                                                                                                                              World grain prices (%yoy, left)
120                                                                                           16
        07 07 07 07 07 07 07 07 07 07 07 07 08 08 08 08 08 08 08 08 08 08 08 08 09 09 09 09 09 09 09 09 09 09 09 09 10 10 10 10 10 10 10 10 10 10 10 10 11 11 11 11 11 11 11 11 11 11 11 11 12 12 12 12 12 12 12 12 12 12 12 12 13 13




                                                               Food CPI (%yoy)                                                                                                                                                                120                                                            Food CPI (%yoy)               25
                                                                                                                                                                                                                                                      07 07 07 07 07 07 07 07 07 07 07 07 08 08 08 08 08 08 08 08 08 08 08 08 09 09 09 09 09 09 09 09 09 09 09 09 10 10 10 10 10 10 10 10 10 10 10 10 11 11 11 11 11 11 11 11 11 11 11 11 12 12 12 12 12 12 12 12 12 12 12 12 13 13


                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           120                                                                                          20
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  07 07 07 07 07 07 07 07 07 07 07 07 08 08 08 08 08 08 08 08 08 08 08 08 09 09 09 09 09 09 09 09 09 09 09 09 10 10 10 10 10 10 10 10 10 10 10 10 11 11 11 11 11 11 11 11 11 11 11 11 12 12 12 1 2 12 12 12 12 12 12 12 12 13 13




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          Food CPI (%yoy)
                                                               Food CPI (%, run-rate)                                                                                                                                                                                                                        Food CPI (%, run-rate)        20                                                                                                                                                                                                             Food CPI (%, run-rate)
  90                                                                                                                                                                                                                                    12      90                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 15
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      15    80
  60                                                                                                                                                                                                                                            60                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 10
                                                                                                                                                                                                                                        8                                                                                                                                                                                                                                             10
  30                                                                                                                                                                                                                                            30                                                                                                                                                                                                                                          40                                                                                                                                                                                                                                     5
                                                                                                                                                                                                                                        4                                                                                                                                                                                                                                             5
   0                                                                                                                                                                                                                                             0                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 0
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      0       0
 -30                                                                                                                                                                                                                                    0      -30                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 -5
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      -5
 -60                                                                                                                                                                                                                -4                         -60                                                                                                                                                                                                            -10                          -40                                                                                                                                                                                                             -10
   Jan-07                                                 Jan-09                                                                     Jan-11                                                                    Jan-13                            Jan-07                                                Jan-09                                                                   Jan-11                                                                   Jan-13                              Jan-07                                                Jan-09                                                                    Jan-11                                                                   Jan-13

Source: Haver Analytics®, Eurostat, Credit Suisse                                                                                                                                                                                            Source: Haver Analytics®, CSO, Eurostat, Credit Suisse                                                                                                                                                                                        Source: Haver Analytics®, CBS, Credit Suisse




Global Inflation Watch                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  33
                                                                                                                                                              29 January 2013




Exhibit 85: Emerging markets headline inflation
% year-on-year change in the CPI indices (WPI for India).

                                          3Q 2011    4Q 2011     1Q 2012      2Q 2012      3Q 2012     4Q 2012       Nov 12       Dec 12 1Q 2013F 2Q 2013F 3Q 2013F 4Q 2013F
Latin America*                                8.8          8.8         8.3          7.8          7.8         8.0          7.9            8.1    9.0    9.7      9.9      9.9
Argentina**                                  21.6        20.9         21.3         22.0        22.8         23.7        23.9         23.9       na     na       na        na
Brazil                                        7.1          6.7         5.8          5.0          5.2         5.6          5.5            5.8    6.2    6.1      5.9      5.4
Chile                                         3.1          4.0         4.1          3.1          2.6         2.2          2.1            1.5    1.4    2.3      2.8      2.0
Colombia                                      3.5          3.9         3.5          3.4          3.1         2.8          2.8            2.4    2.2    2.3      2.6      2.7
Mexico                                        3.4          3.5         3.9          3.9          4.6         4.1          4.2            3.6    3.4    3.5      2.9      3.3
Panama                                        5.6          6.4         6.3          5.9          5.8         4.8          4.5            4.6    na     na       na        na
Peru                                          3.5          4.5         4.2          4.1          3.5         2.9          2.7            2.6    na     na       na        na
Venezuela                                    25.8        27.4         25.3         22.6        18.5         18.7        18.0         20.1      22.8   26.5     28.6     29.0
EEMEA*                                        6.7          6.6         5.7          5.3          6.0         5.7          5.5            5.5    5.8    5.9      6.0      5.9
Czech Republic                                1.8          2.4         3.7          3.4          3.3         2.8          2.7            2.4    2.2    2.0      2.0      2.0
Egypt                                         9.0          8.5         8.6          8.1          6.3         5.2          4.3            4.7    na     na       na        na
Hungary                                       3.4          4.1         5.6          5.5          6.1         5.4          5.2            5.0    3.9    4.1      4.5      4.8
Israel                                        3.2          2.5         1.8          1.6          1.8         1.6          1.4            1.6    1.5    1.7      1.8      2.2
Kazakhstan                                    8.9          7.7         5.1          4.9          4.7         5.7          5.6            6.0    6.4    6.5      6.1      5.9
Nigeria                                       9.7        10.5         12.2         12.8        11.9         12.0        12.3         12.0       na     na       na        na
Poland                                        4.1          4.6         4.1          4.0          3.9         2.9          2.8            2.4    2.6    2.6      3.0      3.2
Romania                                       4.2          3.4         2.6          1.9          4.1         4.8          4.6            5.0    na     na       na        na
Russia                                        8.1          6.7         3.9          3.8          6.0         6.5          6.5            6.6    6.8    6.5      5.9      5.7
South Africa                                  5.4          6.1         6.1          5.7          5.1         5.6          5.6            5.7    5.7    5.8      6.0      5.3
Turkey                                        6.4          9.2        10.5          9.4          9.0         6.8          6.4            6.2    7.3    7.3      7.1      6.2
Ukraine                                       8.4          5.0         2.9         -0.4          0.0        -0.1         -0.2        -0.2       0.9    5.1      6.7      7.7
EM Asia*                                      6.4          5.2         4.3          3.7          3.1         3.1          3.3            3.2    3.2    3.6      3.7      4.1
EM Asia ex- China and India*                  4.9          4.5         3.7          3.3          3.0         3.0          2.8            2.9    3.2    3.3      3.7      4.0
China                                         6.3          4.6         3.8          2.9          1.9         2.1          2.0            2.5    2.1    2.9      3.1      3.6
Hong Kong                                     6.4          5.7         5.2          4.2          3.1         3.8          3.8            3.8    3.1    3.4      4.5      3.9
India                                         9.7          9.0         7.0          7.4          7.8         7.3          7.2            7.2    7.0    6.4      5.9      5.9
Indonesia                                     4.7          4.1         3.7          4.5          4.5         4.4          4.3            4.3    4.7    4.9      5.7      6.7
Korea                                         4.3          4.0         3.0          2.4          1.6         1.7          1.6            2.4    2.4    2.5      3.0      3.2
Malaysia                                      3.4          3.2         2.3          1.7          1.4         1.3          1.3            1.2    1.6    2.1      2.7      3.0
Philippines                                   4.8          4.7         3.1          2.9          3.5         3.0          2.8            2.9    3.1    3.1      3.3      3.5
Singapore                                     5.5          5.5         4.9          5.3          4.2         4.0          3.6            4.3    4.2    3.8      3.4      3.2
Taiwan                                        1.3          1.4         1.3          1.7          2.9         1.8          1.6            1.6    2.2    2.1      1.8      1.8
Thailand                                      4.1          4.0         3.4          2.5          2.9         3.2          2.7            3.6    3.3    3.6      3.8      3.8
Vietnam                                      22.5        19.8         15.9          8.6          5.6         7.0          7.1            6.8    4.7    5.0      5.2      5.5
EM*                                           6.9          6.3         5.6          5.0          4.9         4.9          4.8            5.0    5.2    5.6      5.7      5.9
EM ex- China and India*                       7.0          6.9         6.1          5.7          5.9         5.9          5.7            5.8    6.3    6.7      6.9      7.0
*The regional aggregates are calculated by weighting each country’s inflation data by their three-year moving average US$ GDP weights.
**For Argentina we use unofficial headline CPI data supplied by Haver Analytics®.
Source: Haver Analytics®, Credit Suisse




Global Inflation Watch                                                                                                                                                    34
                                                                                                                                                                           29 January 2013




Exhibit 86: Emerging markets core inflation
% year-on-year change in the CPI indices (WPI for India) excluding food, energy, alcohol and tobacco.

                                          3Q 2010      4Q 2010        1Q 2011    2Q 2011       3Q 2011      4Q 2011      1Q 2012      2Q 2012         3Q 2012   4Q 2012   Nov 12   Dec 12
Latin America*                                  6.3          6.2          6.1           5.9          6.3          6.7          6.3          5.9           5.3       5.2      5.1      5.3
Brazil                                          5.0             4.9       5.4           5.6          6.1          6.4          5.4          5.1           4.3       4.3      4.1      4.5
Chile                                           1.6             2.0       2.2           2.4          2.1          2.9          3.3          2.6           2.2       2.2      1.7      1.3
Colombia                                        3.0          3.1          3.1           3.2          3.4          3.8          3.8          3.8           3.7       3.4      3.4      3.2
Mexico                                          3.9          3.8          3.0           2.3          2.2          2.3          2.4          2.6           2.6       2.6      2.3      2.0
Peru                                            1.1          1.3          1.9           2.1          2.5          2.7          2.5          2.8           2.3       2.3      1.7      1.7
Venezuela                                      26.3         24.8         25.4         23.6         24.7         25.3          23.1         19.8          17.8      17.8     17.1     18.1
EEMEA*                                          3.8          3.5          3.9           4.4          4.9          5.4          5.6          5.5           5.2       4.7      4.7      4.7
Czech Republic                                  0.1          0.0          -0.3         -0.3         -0.2          0.3          1.6          1.8           1.6       1.3      1.3      1.1
Hungary                                         1.6          1.5          1.4           1.7          1.7          2.2          3.7          3.3           3.6       3.5      3.5      3.5
Israel                                          2.3             2.1       3.3           3.2          2.9          2.6          1.7          1.4           1.0       0.5      0.5      0.6
Kazakhstan                                      6.8          6.5          6.2           5.6          5.9          5.0          4.3          4.9           5.4       6.7      6.7      6.2
Nigeria                                        12.3         11.6         10.8         11.4           9.9        10.5          13.6         14.2          13.1      12.2     12.3     12.9
Poland                                          0.9          0.9          1.3           1.9          2.1          2.8          2.7          2.5           2.2       1.5      1.5      1.0
Romania                                         4.8          4.7          4.6           3.7          2.5          2.6          3.0          3.6           3.3       2.9      2.9      2.7
Russia                                          4.1          4.1          4.6           5.2          5.8          5.9          6.0          5.7           5.4       5.0      5.0      4.9
South Africa                                    3.0             3.0       2.7           3.1          3.6          3.6          4.2          4.2           4.3       4.6      4.6      4.7
Turkey**                                        4.1          2.7          3.6           4.8          6.2          8.0          8.2          7.8           7.1       5.9      5.7      5.8
EM Asia*                                        2.3          2.8          3.4           3.6          3.6          3.2          2.5          2.3           2.6       2.5      2.4      2.5
EM Asia ex- China and India*                    2.2          2.4          2.8           3.1          3.4          3.2          2.8          2.5           2.3       2.6      2.5      2.6
China***                                        1.1          1.5          2.2           2.4          2.4          1.9          1.5          1.3           1.5       1.5      1.6      1.7
Hong Kong                                      -0.6          1.7          3.0           4.1          6.8          5.6          5.4          4.4           2.3       2.3      3.6      3.6
India                                           6.9          8.2          9.4           8.9          8.7          7.6          5.4          5.0           6.5       6.5      5.2      4.8
Indonesia****                                   4.1          4.3          4.3           4.6          4.9          4.4          4.3          4.2           4.2       4.2      4.4      4.4
Korea                                           1.9          1.7          2.2           2.7          2.7          2.8          2.3          1.4           1.2       1.2      1.4      1.3
Philippines***                                  4.0             3.4       3.5           3.6          3.6          3.7          2.8          2.6           3.2       3.2      3.0      3.1
Singapore                                       3.3             4.7       5.9           4.9          5.8          5.5          5.0          6.1           5.1       5.1      4.7      5.7
Taiwan                                          0.5          0.6          0.6           0.8          0.7          0.7          0.3          0.5           0.6       0.6      0.6      0.7
Thailand                                        1.1          1.0          0.8           0.5          0.5          0.5          0.5          0.7           0.9       0.9      1.1      1.0
EM*                                             3.5          3.6          4.1           4.2          4.4          4.3          4.0          3.8           3.8       3.6      3.6      3.6
EM ex- China and India*                         4.3          4.2          4.4           4.6          5.0          5.3          5.1          4.9           4.5       4.3      4.3      4.4
*The regional aggregates are calculated by weighting each country’s inflation data by their three-year moving average US$ GDP weights.
**Official core excluding energy, food, beverages, tobacco and gold.
***Core inflation measured by CPI exc. food and energy.
****Official core inflation measured by CPI exc. food (volatile good) and energy, fuel, transportation and water supply (administered commodities).
Source: Haver Analytics®, National authorities, Credit Suisse




Global Inflation Watch                                                                                                                                                                 35
                                                                                                                                                     29 January 2013




                                                   Non-Japan Asia: Headline CPI rose in December
                              Michael Wan
                            +65 6212 3418          In non-Japan Asia, headline CPI rose to 3.2% yoy in December from 3.0% in November
                michael.wan@credit-suisse.com      (Exhibit 87). This partly reflected the fact that food prices in China rose, driven by the
                                  Dong Tao         particularly cold winter in China. More broadly, we think that 2013 inflation in China will
                           +852 2101 7469          turn higher, driven by the turn of the pork production cycle in Q2 2013 (see China: Further
                   dong.tao@credit-suisse.com      strengthening in activities and a turn in inflation in November). Excluding China, NJA’s
                 Robert Prior-Wandesforde          headline inflation remained flat at 4.2% yoy. On a 3m-on-3m seasonally adjusted
                             +65 6212 3707         annualized basis (a measure of price momentum in the economy), NJA inflation fell to
     robert.priorwandesforde@credit-suisse.com
                                                   3.4% in December, from 3.9% the previous month. This largely reflected the fact that India
                         Santitarn Sathirathai     saw its inflation momentum fall significantly to 7.6% from 9.6% last month. For India,
                               +65 6212 5675
                                                   barring a major food price shock, perhaps reflecting an extended period of colder than
         santitarn.sathirathai@credit-suisse.com
                                                   normal winter weather in the north of India, headline WPI inflation looks likely to drop
                     Christiaan Tuntono            further. We expect it to be below 6.5% by the end of the fiscal year, dropping to less than
                       +852 2101 7409
   christiaan.tuntono@credit-suisse.com            6% by June. We believe the lagged effects of weaker rupee-denominated commodity price
                                                   inflation, soft demand and a downturn in monetary growth will ensure core inflation trends
                           Weishen Deng            lower beyond the next two or three months (for more details, see India Economics: What’s
                          +852 2101 7162
              weishen.deng@credit-suisse.com       in store for 2013?).
                                                   Monthly inflation developments: Out of the ten NJA economies we follow, six out of ten
                                                   countries saw their inflation rise, namely Thailand, Singapore, China, Philippines, Taiwan,
                                                   and Hong Kong, compared with a month ago (Exhibit 89). In the next section, we have
                                                   chosen to focus on recent inflation developments in three countries: China, India, and
                                                   Singapore. For China, the rise in the December outturn was driven by food prices, driven
                                                   by a 18% mom surge in vegetable prices. For India, the 7.2% yoy outturn in December
                                                   was the third consecutive downward surprise, when compared with consensus estimates
                                                   on Bloomberg. A drop in the fuel component and lower manufacturing inflation led the
                                                   RBI’s preferred measure of core inflation to fall from 4.5% to 4.2% – the lowest since
                                                   March 2010 and ½ percentage point below the average since 2005. Meanwhile, in
                                                   Singapore, while the headline inflation rate surprised on the upside, we note some silver
                                                   linings amidst the high print.

  Exhibit 87: NJA inflation                                                        Exhibit 88: NJA ex China inflation
     12%                                                                              16%           NJA ex China %yoy                 NJA ex China 3m/3m saar
                              NJA %yoy               NJA 3m/3m saar
     10%                                                                              14%
                                                                                      12%
       8%
                                                                                      10%
       6%
                                                                                       8%
       4%                                                                              6%
       2%                                                                              4%
       0%                                                                              2%
                                                                                       0%
      -2%
                                                                                      -2%
      -4%                                                                             -4%
      -6%                                                                             -6%
         2004 2005 2006 2007 2008 2009 2010 2011 2012                                    2004       2005     2006      2007    2008    2009   2010    2011   2012

  * Weighted by nominal 2011 GDP                                                   * Weighted by nominal 2011 GDP
  saar: seasonally adjusted annualised rate                                        saar: seasonally adjusted annualised rate
  Source: CEIC, Credit Suisse                                                      Source: CEIC, Credit Suisse




Global Inflation Watch                                                                                                                                           36
                                                                                                                  29 January 2013




                         Exhibit 89: December vs. November headline inflation in NJA countries
                           9%
                                              Nov 2012 (%yoy)   Dec 2012 (%yoy)   pp change in yoy headline inflation

                           7%


                           5%


                           3%


                           1%


                          -1%


                          -3%
                                      KR           MY     IN     ID       HK      TW       PH        CN         SG        TH
                         Source: CEIC, Credit Suisse




                         NJA Country Highlights
                         China December CPI: Headline CPI inflation rose due to food prices
                         Headline CPI inflation reached 2.5% yoy in December, from 2.0% yoy in November,
                         fairly in-line with the Bloomberg consensus of 2.3%. On a month-on-month basis, CPI
                         went up by 0.8%, and we estimate that the price level rose by 0.4% on a seasonally
                         adjusted basis. Headline inflation printed at 2.6% for 2012, in line with our forecast.
                         In the details, food inflation increased further to 4.2% yoy from 3.0% yoy in the prior
                         month, driven by the particularly cold winter in China. On a month-on-month basis,
                         food prices jumped by 2.4% with all items in the food basket recording sequential
                         increases. The increase was led by the 17.5% mom surge in fresh vegetable prices. Pork
                         prices also went up by 3.9% on monthly basis. On a year-on-year basis, the price increase
                         for vegetables has increased to 14.8% in December from its previous print of 11.3%.
                         Non-food inflation was at 1.7% yoy, while sequentially, non-food prices have
                         remained unchanged for two consecutive months. Inflation in the services basket
                         remained unchanged on month-on-month basis, but the lower base during the same
                         period last year resulted in a mild increase in its year-on-year inflation rate from 2.3% in
                         November to 2.5% in December. Sequentially, price changes for items in the non-food
                         basket remained relatively mild. The highest sequential increase came from household
                         services, which went up by 0.8% mom. Prices for automobile fuel and components
                         recorded the largest sequential fall among all items with a 1.3% mom fall. PPI remained in
                         negative territory, at -1.9% yoy in December.
                         December headline inflation climbed to the highest level since May 2012. This is in-
                         line with our view that CPI inflation may have bottomed at 1.7% in October. The key
                         driver behind the increase is the surge in food prices. Food prices contributed 1.4
                         percentage points out of the 2.5% yoy growth in the headline rate. The increase was
                         mainly driven by the particularly cold winter in China, with the average temperature in
                         December 2012 at the country’s lowest in 7 years.




Global Inflation Watch                                                                                                         37
                                                                                                            29 January 2013




                         Exhibit 90: China’s CPI breakdown
                                                           Dec    Nov      Oct          Sep          Aug                Jul
                         Headline CPI                       2.5    2.0      1.7          1.9          2.0               1.8
                         %mom, nsa                          0.8    0.1     -0.1          0.3          0.6               0.1
                         Food CPI                           4.2    3.0      1.8          2.5          3.4               2.4
                         %mom, nsa                          2.4    0.4     -0.8          0.2          1.5              -0.1
                         Non-food CPI                       1.7    1.6      1.7          1.7          1.4               1.5
                         %mom, nsa                          0.0    0.0      0.3          0.4          0.1               0.2
                         Services CPI                       2.5    2.3      2.3          2.3          2.1               2.0
                         %mom, nsa                          0.0   -0.3     -0.2          0.3          0.7               0.6
                         PPI                               -1.9   -2.2     -2.8         -3.6         -3.5              -2.9
                         (%yoy, unless otherwise stated)
                         Source: NBS, Credit Suisse




                         India December WPI: Stable headline and falling core
                         Doubly good: India’s December wholesale price release was relatively unusual in a
                         couple of respects. Not only did it represent the third consecutive downside surprise
                         compared with the Bloomberg consensus expectation, but it incorporated a downward
                         revision to the October outturn. Both factors are good news and, in isolation, increase the
                         potential for a 50bps move at the RBI’s 29 January meeting. We say in isolation because
                         India’s December CPI was also released and showed a strong pick up to 10.6% from 9.9%
                         – complicating the rate call.
                         Stable headline, falling core: The headline rate of WPI inflation was unchanged at 7.2%
                         in December, but to two decimal places dropped from 7.24% to 7.18%. The market was
                         expecting 7.4%, while we were at 7.2%. Looking at the detail of the release, primary goods
                         inflation rose to 10.6% from 9.4% thanks mainly to surging potato and onion prices – 89%
                         and 69% respectively. But this was offset by a drop in the fuel component (to 9.4% from
                         10%) and lower manufacturing inflation (5.0% from 5.4%). We calculate that the RBI’s
                         preferred measure of core inflation, which strips out processed food from the
                         manufacturing component, fell from 4.5% to 4.2%, the lowest since March 2010 and ½
                         percentage point below the average since 2005.
                         Where to next:
                          Headline heading below 6%. Barring a major food price shock, perhaps reflecting an
                           extended period of colder than normal winter weather in the north of India, headline WPI
                           inflation looks likely to drop further between December and March. We expect it be
                           below 6.5% by the end of the fiscal year, dropping to less than 6% by June.
                          Core rate to drop below 4%. Challenging base effects make it hard to believe the core
                           rate will also drop in the March quarter (our forecast is that it will rise to 4.5%-5.0% by
                           March) but come the middle of the year we expect it to be below 4%. These longer-term
                           projections are key to our post-January rate view and largely reflect the results of some
                           recent modeling work. In short, we believe the lagged effects of weaker rupee-
                           denominated commodity price inflation, soft demand and a downturn in monetary growth
                           will ensure core inflation trends lower beyond the next two or three months.
                         In the sweet spot: As argued in our recent report, India looks to be entering the sweet
                         spot of the economic cycle. We expect growth to surprise on the upside and inflation and
                         policy rates on the downside, while even the twin deficits may narrow more than generally
                         expected.




Global Inflation Watch                                                                                                  38
                                                                                                         29 January 2013




                         Exhibit 91: Core inflation has broken out of its recent range. The same will
                         shortly be true of the headline rate
                           % y-o-y                                  Headline WPI        Core WPI*
                            12
                             10
                              8
                              6
                              4
                              2
                              0
                             -2
                                  07                   08                09        10     11        12            13
                         * Three-month moving average of year-on-year rate
                         Source: CEIC, Credit Suisse




                         Singapore December inflation: Some silver linings
                         An upside surprise, but some silver linings: Singapore’s December headline inflation
                         surprised on the upside, rising to 4.3% yoy, from 3.6% yoy the previous month, and above
                         the consensus expectation of 3.8% yoy as surveyed by Bloomberg. Despite this, we note
                         some silver linings amidst this high inflation print.
                         Silver lining #1: MAS core inflation fell: The MAS core rate of inflation, which strips out
                         housing accommodation and private transport costs, fell to 1.9% in December, compared
                         with 2.0% the previous month. On a sequential 3-month-on-3-month seasonally adjusted
                         annualized basis, the core rate fell to 1% in December, compared with 1.2% the previous
                         month.
                         While the central bank’s official forecast is for the core inflation rate to average 2% to 3%
                         in 2013, we note that they have factored in some degree of food price rise and wage
                         increase into their forecast. From our perspective, slower nominal wage growth of 3% last
                         year versus 5% to 6% in 2010 and 2011, coupled with the generally weak domestic macro
                         environment should reduce the wage-cost pass through onto consumer prices over the
                         rest of this year. We are looking for core inflation to average 1.8% to 2% in 2013, at the
                         lower end of the central bank’s forecast.
                         Silver lining #2: Some of the rise in the headline rate was temporary: While the
                         housing accommodation component of CPI rose to 8.4% yoy in December, compared with
                         6.6% yoy in November, the central bank has noted that this was temporary, driven
                         “largely” by base effects associated with housing rebates given during the same period in
                         2011, and not in December 2012.
                         More broadly, we think that housing accommodation costs should continue to trend down
                         on a year-on-year basis over 2013, given that the housing accommodation of CPI is
                         computed based on both existing and new rental contracts, whereas the URA rental index
                         is based solely on new contracts. The moderation that we have already seen in the URA
                         rental index should therefore be reflected in the CPI with a lag.
                         The private transport CPI contributed to a 0.3% increase in the year-on-year rate in
                         December, from the previous month. This was a reflection of the 9% rise in Certificate of
                         Entitlement (CoE) prices that was already seen in November 2012, when Category B



Global Inflation Watch                                                                                                 39
                                                                                                                                                                          29 January 2013



                                                 vehicle premiums rose to $93,000, from $83,000 the previous month. While we still hold
                                                 our view that private transport costs will pose the biggest upside risk to our inflation
                                                 forecasts in 2013 given the cut in CoE quotas come February, moving forward, we expect
                                                 the rise to be slightly more subdued from here, given that part of the supply cut has
                                                 already been priced into the market.

 Exhibit 92: MAS headline inflation went up, but core
 inflation fell                                                                            Exhibit 93: Contribution to year-on-year inflation
 10%                            MAS Core Inflation (%yoy)*                                 2.0%                                Contribution to Oct 2012 yoy inflation
                                Headline CPI (%yoy)
   8%                                                                                                                          Contribution to Nov 2012 yoy inflation
                                                                                           1.5%
                                                                                                                               Contribution to Dec 2012 yoy inflation
   6%
                                                                                           1.0%
   4%
                                                                               4.3%
   2%                                                                                      0.5%
                                                                               1.9%
   0%
                                                                                           0.0%
  -2%                                                                                                   Accomm            Private             Food           Services*         Other CPI
                                                                                                        odation**        Transport
          07               08         09          10            11           12
 * MAS core inflation excludes accommodation and private transport costs                   * We have defined services inflation as the recreation plus health services components of the CPI.
                                                                                           ** A large part of the increase in accommodation costs in December was driven by disbursement of
 Source: CEIC, Credit Suisse
                                                                                           housing rebates during the same period in 2011.
                                                                                           Source: CEIC, Credit Suisse




 Exhibit 94: Non Japan Asia inflation projections
 y/y%

                           Q1 2012         Q2 2012        Q3 2012          Q4 2012 2012 Average        Q1 2013E           Q2 2013E          Q3 2013E           Q4 2013E 2013 Average
 China                          3.8             2.9            1.9              2.1          2.6             2.2                3.2               3.0                3.9          3.1
 Hong Kong                      5.2             4.2              3.1              3.8        4.1                3.2                3.5                4.0               3.4                3.5
 India*                         7.5             7.5              7.9              7.3        7.3                6.7                6.3                5.7               6.0                6.0
 Indonesia                      3.7             4.5              4.5              4.4        4.3                4.7                5.0                6.0               7.0                5.7
 Korea                          3.0             2.4              1.6              1.7        2.2                2.5                2.5                3.2               3.2                2.9
 Malaysia                       2.3             1.7              1.4              1.3        1.7                1.7                2.2                3.0               2.9                2.5
 Philippines                    3.1             2.9              3.5              2.9        3.1                2.9                3.2                3.4               3.5                3.3
 Singapore                      4.9             5.3              4.2              4.0        4.6                4.1                3.7                3.3               3.1                3.5
 Taiwan                         1.3             1.7              2.9              1.8        1.9                2.3                2.0                1.7               1.9                2.0
 Thailand                       3.4             2.5              2.9              3.2        3.0                3.3                3.8                3.8               3.9                3.7
 * Fiscal year forecasts
 Source: Credit Suisse




Global Inflation Watch                                                                                                                                                                     40
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             29 January 2013




                                                                                                                                                                                                                              EEMEA: Core inflation dynamics remain benign while
                                                                                                                                                                                                                              food price inflation slowed notably in Q4 2012
                                  Berna Bayazitoglu
                                  +44 20 7883 3431                                                                                                                                                                            The EEMEA region comprises the Czech Republic, Hungary, Israel, Poland,
                    berna.bayazitoglu@credit-suisse.com                                                                                                                                                                       Romania, Russia, South Africa and Turkey for the purposes of this analysis. The
                                       Natig Mustafayev                                                                                                                                                                       region’s year-on-year headline inflation edged slightly lower in December driven by
                                      +44 20 7888 1065                                                                                                                                                                        a slowdown in regional energy and core prices. Food price inflation dynamics eased
                        natig.mustafayev@credit-suisse.com                                                                                                                                                                    notably in the past three months while core inflation dynamics remain benign in all
                                                                                                                                                                                                                              EEMEA countries. In particular, in CE3 and Russia, the run-rate of core inflation has
                                                                                                                                                                                                                              remained below the lower end of the headline/core inflation target range in the past
                                                                                                                                                                                                                              several months.
                                                                                                                                                                                                                              The region’s year-on-year headline inflation rate declined further to 5.3% in
                                                                                                                                                                                                                              December from 5.4% in November and its recent high of 6.2% in September. The
                                                                                                                                                                                                                              slowdown in year-on-year headline inflation was driven by continued deceleration in
                                                                                                                                                                                                                              regional energy and core prices (Exhibits 95-96). The year-on-year headline inflation in
                                                                                                                                                                                                                              December decreased in all CE3 economies and Turkey, while it picked up slightly in
                                                                                                                                                                                                                              Russia and South Africa, and increased in Israel and Romania. We expect the year-on-
                                                                                                                                                                                                                              year headline inflation in the region to pick up to 5.7% in Q1 2013 before slowing to 5.0%
                                                                                                                                                                                                                              in December 2013 (Exhibits 95).
                                                                                                                                                                                                                              The region’s year-on-year food price inflation remained unchanged at 5.6% in
                                                                                                                                                                                                                              December after slowing from its recent peak of 7.1% in September (Exhibits 95-96).
                                                                                                                                                                                                                              (Food items make up on average 25% of the CPI baskets in the EEMEA region.) In
                                                                                                                                                                                                                              December, the year-on-year food price inflation continued to decline in the Czech
                                                                                                                                                                                                                              Republic, Poland and Turkey, and edged slightly lower from its recent seven-month peak
                                                                                                                                                                                                                              in South Africa. Food price inflation has been surprising on the downside in Turkey for
                                                                                                                                                                                                                              most part of 2012 and reached the slowest pace in the last 14 months, mainly due to the
                                                                                                                                                                                                                              prices of unprocessed food products. Meanwhile, year-on-year food price inflation picked
                                                                                                                                                                                                                              up in Israel, Romania and Russia and remained flat in Hungary.

 Exhibit 95: EEMEA*: Inflation                                                                                                                                                                                                                                           Exhibit 96: EEMEA*: Contributions Exhibit 97: Run-rate of EEMEA*
 developments                                                                                                                                                                                                                                                            to headline inflation             inflation
 % year-on-year change                                                                                                                                                                                                                                                   pps, with the exception of headline inflation               annualized 3m% change, seasonally adjusted
                                                                                                        Energy                                                                                                                                                                                  Alcohol & Tobacco                                                                                                            Energy
  18     09   10   10   10   10   10   10   10   10   10   10   10   10   11   11   11   11   11   11   11   11




                                                                                                        Food & NAB
                                                                                                                  11   11   11   11   12   12   12   12   12   12   12   12   12   12   12   12   13   13   13   13   13    13   13   13   13   13   13   13   14


                                                                                                                                                                                                                                                                    18     10                                                    10 30      09   10   10   10   10   10   10   10   10   10   10   10   10   11   11   11   11   11   11   11   11   11   11   11   11   12   12   12   12   12   12   12   12   12   12   12   12   13


                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          30
                                                                                                                                                                                                                                                                                                Energy                                                                                                                       Food & NAB
                                                                                                        Core**                                                                                                                                                                                  Food & NAB                                                                                                                   Core**
  15                                                                                                    Headline CPI                                                                                                                                                15                          Core**
                                                                                                                                                                                                                                                                                                                                      25                                                                                     Headline CPI                                                                                                 25
                                                                                                                                                                                                                                                                             8                                                   8
                                                                                                                                                                                                                           CS forecast




                                                                                                                                                                                                                                                                                                Headline CPI
  12                                                                                                                                                                                                                                                                12
                                                                                                                                                                                                                                                                                                                                      20                                                                                                                                                                                                  20
                                                                                                                                                                                                                                                                             6                                                   6    15                                                                                                                                                                                                  15
    9                                                                                                                                                                                                                                                               9
                                                                                                                                                                                                                                                                             4                                                   4    10                                                                                                                                                                                                  10
    6                                                                                                                                                                                                                                                               6
                                                                                                                                                                                                                                                                                                                                       5                                                                                                                                                                                                  5
    3                                                                                                                                                                                                                                                               3        2                                                   2
                                                                                                                                                                                                                                                                                                                                       0                                                                                                                                                                                                  0
   0                                0                                                                                                                                                                                                                                        0                                                   0    -5                                                                                                                                                                                                  -5
   Dec-09 Dec-10 Dec-11 Dec-12 Dec-13                                                                                                                                                                                                                                        Dec-09         Dec-10         Dec-11          Dec-12     Dec-09                                         Dec-10                                                          Dec-11                                                      Dec-12

 *Calculated using data for the Czech Republic, Hungary, Israel, *Calculated using data for the Czech Republic, Hungary, Israel, * Calculated using data for the Czech Republic, Hungary, Israel,
 Poland, Romania, Russia, South Africa, and Turkey weighted Poland, Romania, Russia, South Africa, and Turkey weighted Poland, Romania, Russia, South Africa and Turkey weighted by
 by their three-year moving average US$ GDP weights.             by their three-year moving average US$ GDP weights.             their three-year moving average US$ GDP weights.
 **Core inflation is calculated by excluding food and non-                                                                                                                                                                                                               **Core inflation is calculated by excluding food and non-   ** Core inflation excludes food and nonalcoholic beverages,
 alcoholic beverages, energy, tobacco and alcohol from CPI                                                                                                                                                                                                               alcoholic beverages, energy, tobacco and alcohol from CPI   energy, tobacco and alcohol from CPI basket, and is
 basket.                                                                                                                                                                                                                                                                 basket.                                                     harmonious across the above-mentioned eight countries.
 Source: Eurostat, National authorities, Credit Suisse                                                                                                                                                                                                                   Source: Eurostat, National authorities, Credit Suisse       Source: Eurostat, National Statistics Offices, Credit Suisse




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                                                                                                                                            29 January 2013



                         The run-rate9 of regional food price inflation decreased further in December to a six-
                         month low of 4.3% from 5.6% in November and its recent 22-month peak of 11.4% in
                         September (Exhibit 97). The most notable decline in the run-rate of food price inflation in
                         December was observed in Hungary, Romania and South Africa. The dynamics of food
                         price inflation in South Africa eased in December after increasing sharply for four
                         consecutive months. The pass-through to South Africa’s domestic food price inflation from
                         the pick-up in global grain prices during summer months was relatively slower and more
                         prolonged compared to the other countries in the region (please see country-specific food
                         price inflation charts in Exhibits 99, 101, 103, 105, 107, 109, 111, 113).
                         The EEMEA region’s year-on-year energy inflation slowed slightly to 9.3% in
                         December from 9.5% in November and its recent peak at 10.5% in October, thus
                         shaving 0.05pp from the region’s headline inflation (Exhibits 95-96). In December,
                         year-on-year energy inflation eased in all CE3 economies and Turkey, while it picked up
                         modestly in Israel, Russia, South Africa and Romania. Currently, Turkey and South Africa
                         have the most elevated energy inflation in the region, at 15.5% yoy and 11.5% yoy
                         respectively. On the other hand, year-on-year energy inflation in CE3 countries reached its
                         slowest pace in the past three years.
                         The region’s year-on-year alcohol and tobacco price inflation remained unchanged
                         at 8.3% in December after decelerating from its recent peak of 12.1% in September
                         (Exhibit 96).
                         Meanwhile, the year-on-year core inflation10 in the EEMEA region slowed further for
                         the eighth consecutive month to a 20-month low of 4.0% in December from 4.1% in
                         November subtracting 0.05pp from year-on-year headline inflation (Exhibit 95). The
                         year-on-year core inflation decelerated or remained unchanged in most EEMEA countries
                         with the exception of Israel and South Africa where it reached its highest pace since March
                         2010. However, the run-rate of core inflation at the regional level edged slightly higher to
                         3.3% in December from a two-year low of 3.2% in November, on our estimates (Exhibit 97).
                         In all EEMEA countries, the run-rate of core inflation in December remained within
                         or below the respective central banks’ target/target range for headline inflation. In
                         the Czech Republic, Poland, Hungary and Russia, the run-rate of core inflation was below
                         the lower end of the central bank’s end-2012 headline inflation target range in December.
                         In December, the run-rate of core inflation picked up only in Israel and Turkey while it
                         edged slightly lower in Poland and decelerated in the rest of EEMEA. In Israel, the run-rate
                         of core inflation moved above zero after remaining negative for six consecutive months,
                         while Russia’s core inflation has been decelerating for the past seven months and
                         remained below the lower end of the central bank’s target range for core inflation for the
                         past three months.
                         We provide country-specific details on the core inflation dynamics and monetary
                         policy outlook below.
                         The year-on-year headline inflation in Russia picked up marginally to 6.6% in December
                         from 6.5% yoy in November, which was beyond the central bank’s end-year target range
                         of 5.0%-6.0% but closer to the lower end of the CBR’s recent projection of 6.5%-7.0% for
                         end-2012. We expect headline inflation to rise modestly in 1Q 2013, reflecting the fact that
                         at least some of regulated prices have been adjusted higher at the start of the year (in
                         contrast to January 2012 when political pressures kept all such prices in check). However,
                         any such pick-up is set to be modest, with headline inflation likely staying within 7.0% yoy
                         in 1Q and declining steadily (and sustainably) in the remainder of the year to reach 5.7%
                         yoy by end-2013.

                         9    We define the run-rate of inflation as the annualized three-month percentage change in the seasonally adjusted price index.
                         10   Our definition of core inflation excludes food and non-alcoholic beverages, energy, tobacco and alcohol from CPI and is
                              consistent across the eight EEMEA countries included in this analysis.



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                                                                                                            The run-rate of core inflation (excluding all food items, energy, tobacco and alcohol) in
                                                                                                            Russia declined for the seventh consecutive month to 3.4% in December from 3.6% in
                                                                                                            November and the recent high of 5.4% in May. This level is below the lower end of the
                                                                                                            central bank’s target range for the official core inflation (that includes processed food
                                                                                                            categories) of 4.5%-5.5% yoy for end-2012 (Exhibit 98) (The central bank of Russia (CBR)
                                                                                                            has yet to switch to formal inflation targeting). The officially measured core inflation
                                                                                                            moderated slightly to 5.7% in December after increasing for five consecutive months. The
                                                                                                            run-rate of food price inflation declined further in December to 4.5% from 6.7% in
                                                                                                            November and its recent peak of about 16% in August (Exhibit 99).
                                                                                                            The CBR kept all the policy rates unchanged at its 15 January meeting after narrowing the
                                                                                                            interest rate corridor symmetrically by 50bps at its previous meeting on 10 December. The
                                                                                                            policy statement was less dovish than the previous one, pointing to a less pronounced
                                                                                                            slowdown in economic activity and stabilization in household demand growth, in our
                                                                                                            view. Compared to the December statement, the CBR left out the reference that it “sees
                                                                                                            the current level of interest rates as acceptable for the near future.” While this might be an
                                                                                                            indication of a forthcoming switch to a more accommodative policy stance, it likely points
                                                                                                            only to a possible fine-tuning of the structure of interest rates, without an early outright cut
                                                                                                            in key policy rates. We still expect the CBR to maintain a neutral monetary policy stance
                                                                                                            through Q1 2013 and possibly thereafter (as long as headline inflation stays above the
                                                                                                            CBR’s end-year target of 6%) and switch to a more accommodative policy later in the year,
                                                                                                            most likely in July or later in Q3. The next policy meeting will be held over 11-15 February.

 Exhibit 98: Russia’s core inflation                                                                                                                                                                       Exhibit 99: Russia’s food price inflation
  10    09   10   10   10   10   10   10   10   10   10   10   10   10   11   11   11   11   11   11   11   11   11   11   11   11   12   12   12   12




                                                                                                                                     CS core, 3m% ann.
                                                                                                                                                         12   12   12   12   12   12   12   12   13


                                                                                                                                                                                                      10        35                          Food CPI, 3m% ann.           35
                                                                                                                                     CS core, %yoy                                                                                          Food CPI, %yoy
                                                                                                                                     Official core, %yoy
    8                                                                                                                                                                                                 8         25                                                       25


    6                                                                                                                                                                                                 6         15                                                       15


    4                                                                                                                                                                                                 4          5                                                       5


   2                                                                                                                                                                                    2                       -5                                                      -5
   Dec-09                                                 Dec-10                                                      Dec-11                                                      Dec-12                        Dec-09                 Dec-10          Dec-11     Dec-12

 *Headline inflation target range for 2012 is 5%-6%.                                                                                                                                                       Source: Rosstat, Credit Suisse
 Source: Rosstat, Credit Suisse


                                                                                                            In Turkey, year-on-year headline inflation slowed to 6.2% in December from 6.4% in
                                                                                                            November and as high as 9.2% in September due to the considerable downside surprise
                                                                                                            in unprocessed food prices and the favorable base effect resulting from the 2011 tobacco
                                                                                                            tax hike, despite elevated energy inflation. The run-rate of food price inflation picked up
                                                                                                            modestly to 1.7% in December from -0.5% in November after declining sharply from 8.0%
                                                                                                            in October and its recent high of about 17.0% in September (Exhibit 101). We forecast that
                                                                                                            the headline CPI inflation will pick up to 7-8% by mid-2013 before moderating to 6.1% yoy
                                                                                                            by end-2013.
                                                                                                            Core inflation dynamics deteriorated modestly in December, with the run-rate of core inflation
                                                                                                            increasing to 5.2%, on our estimates, after remaining relatively benign at about 4.3% since
                                                                                                            June 2012, below the central bank's medium-term headline inflation target of 5.0%. The run-
                                                                                                            rate of core inflation has slowed notably in H2 2012 due to the broad stability of the lira’s
                                                                                                            basket exchange rate since early 2012 and slower domestic demand growth (Exhibit 100).
                                                                                                            The central bank’s favorite core inflation indicator (the so-called core index I, which excludes
                                                                                                            food, energy, tobacco, alcoholic beverages and gold from the CPI basket) increased slightly



Global Inflation Watch                                                                                                                                                                                                                                                        43
                                                                                                                                                                                                                                                                      29 January 2013



                                                                                                            to 5.8% yoy in December from 5.7% yoy in November, but remained below the 6.1% yoy
                                                                                                            recorded in October and its peak of 8.4% yoy in January 2012.
                                                                                                            The MPC kept the one-week repo rate unchanged at 5.50% on 22 January, but surprised
                                                                                                            market participants by cutting both the central bank’s overnight lending rate and the
                                                                                                            overnight borrowing rate by 25bps to 8.75% and 4.75%, respectively. The central bank
                                                                                                            also increased the reserve requirement ratios for both lira and FX liabilities modestly in
                                                                                                            view of the “faster-than-predicted” loan growth. In its statement on 22 January, the MPC
                                                                                                            did not signal any imminent changes in the key interest rates, but we think the MPC’s
                                                                                                            decision will remain contingent on the lira’s nominal exchange rate. The overall decision
                                                                                                            on 22 January shows, in our view, a (continuing) reluctance by the MPC to let the lira
                                                                                                            appreciate as the core inflation outlook will likely remain benign as long as the lira’s
                                                                                                            nominal basket exchange rate is broadly stable around 2.07 (or within the 2.05-2.10
                                                                                                            range). Accordingly, we maintain our view that further cuts in both the one-week repo rate
                                                                                                            and the lower end of the short-term interest rate corridor will be on the table in 1H 2013
                                                                                                            (as the lira will likely be under appreciation pressure due to a possible ratings upgrade by
                                                                                                            Moody’s in H1 2013). We maintain our forecast that the MPC will cut the one-week repo
                                                                                                            rate by a total of 50bps to 5.00% and the central bank’s overnight borrowing rate to 3.50%-
                                                                                                            4.00% in H1 2013.

 Exhibit 100: Turkey’s core inflation                                                                                                                                                                      Exhibit 101: Turkey’s food price inflation
  12    09   10   10   10   10   10   10   10   10   10   10   10   10   11   11   11   11   11

                                                                                                  CS core, 3m% ann.
                                                                                                  11   11   11   11   11   11   11   12   12   12   12   12   12   12   12   12   12   12   12   13


                                                                                                                                                                                                      12        50                               Food CPI, 3m% ann.           50
                                                                                                  Core I, 3m% ann.                                                                                                                               Food CPI, %yoy
                                                                                                  CS core, %yoy                                                                                                 40                                                            40
    9                                                                                                                                                                                                 9
                                                                                                                                                                                                                30                                                            30

                                                                                                                                                                                                                20                                                            20
    6                                                                                                                                                                                                 6
                                                                                                                                                                                                                10                                                            10

                                                                                                                                                                                                                  0                                                           0
    3                                                                                                                                                                                                 3
                                                                                                                                                                                                               -10                                                            -10

   0                                                                                                                                                                                    0                      -20                                                           -20
   Dec-09                                                 Dec-10                                                      Dec-11                                                      Dec-12                         Dec-09                 Dec-10            Dec-11       Dec-12

 *Headline inflation target for 2012 is 5% with an uncertainty band of +/-2%.                                                                                                                              Source: Turkstat, Credit Suisse
 Source: Eurostat, Credit Suisse


                                                                                                            South Africa’s headline inflation edged slightly higher to a seven-month high of 5.7% in
                                                                                                            December after remaining flat at 5.6% in October-November. The pick-up in headline
                                                                                                            inflation was driven by core prices as year-on-year core inflation reached the highest pace
                                                                                                            since March 2010.
                                                                                                            However, the run-rate of South Africa’s core inflation has been range-bound between
                                                                                                            4.5% and 5.0% since August and remained broadly stable at 4.7% in December, on our
                                                                                                            estimates, which is within the central bank’s headline inflation target range of 3.0%-6.0%
                                                                                                            (Exhibit 102).
                                                                                                            The run-rate of food price inflation eased notably to 17.4% in December after accelerating
                                                                                                            for four consecutive months due to gradual pass-through from global grain price surge
                                                                                                            during the summer months (Exhibit 103). We forecast that the year-on-year headline CPI
                                                                                                            inflation remained unchanged at 5.7% in January and it will pick up gradually to 6.2% by
                                                                                                            mid-2013 before slowing to 5.2% by end-2013. The MPC held the policy rate at 5.0% on
                                                                                                            22 November and highlighted upside risks to inflation and downside risks to economic
                                                                                                            growth. The MPC next meets on 22-24 January and we expect that it will hold rates steady
                                                                                                            through 2013.




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                                                                                                                                                                                                                                                                                                                                                                                                                 29 January 2013




 Exhibit 102: South Africa’s core inflation                                                                                                                                                                                                                                                                                                         Exhibit 103: South Africa’s food price inflation
     8        09        10        10        10        10        10        10        10    10    10    10   10   10   11   11   11   11   11    11    11    11        11        11        11        11        12        12        12        12        12        12        12        12        12        12        12        12        13


                                                                                                                                                                                                                                                                                                                                               8         25                               Food CPI, 3m% ann.             25
                                                                                                                                    CS core, 3m% ann.
                                                                                                                                                                                                                                                                                                                                                                                          Food CPI, %yoy
                                                                                                                                    CS core, %yoy
                                                                                                                                                                                                                                                                                                                                                         20                                                              20
     6                                                                                                                                                                                                                                                                                                                                         6
                                                                                                                                                                                                                                                                                                                                                         15                                                              15

     4                                                                                                                                                                                                                                                                                                                                         4         10                                                              10

                                                                                                                                                                                                                                                                                                                                                           5                                                             5
     2                                                                                                                                                                                                                                                                                                                                         2
                                                                                                                                                                                                                                                                                                                                                           0                                                             0

     0                                                                                                                                                                                                                                                                                                  0                                                 -5                                                            -5
     Dec-09                                                                                          Dec-10                                                                    Dec-11                                                                                                             Dec-12                                                  Dec-09                  Dec-10             Dec-11       Dec-12

 *Headline inflation target range for 2012 is 3%-6%.                                                                                                                                                                                                                                                                                                Source: Statistics South Africa, Credit Suisse
 Source: Statistics South Africa, Credit Suisse


                                                                                                                                                           In the Czech Republic, the headline CPI inflation moderated further to 2.4% in December
                                                                                                                                                           from 2.7% yoy in November and its recent peak of 3.4% yoy in October and September,
                                                                                                                                                           but remained modestly above the central bank’s 2% yoy target. The moderation in CPI
                                                                                                                                                           inflation was broad-based. The run-rate of core inflation decreased to 0.5% in December
                                                                                                                                                           from 1.1% in November, on our estimates (Exhibit 104). Meanwhile, the run-rate of food
                                                                                                                                                           price inflation fell further to 0.6% in December from 2.6% in November and its recent high
                                                                                                                                                           of 6.9% in October (Exhibit 105).
                                                                                                                                                           We project that headline inflation will moderate further to around the central bank’s target
                                                                                                                                                           this year, but a potential weakening in the koruna’s exchange rate can pose an upside risk
                                                                                                                                                           to inflation, in our view. The Czech National Bank (CNB) board lowered the policy rate
                                                                                                                                                           from 0.75% to close to zero (0.05%) in three steps between June and November, and
                                                                                                                                                           Governor Singer said that FX intervention could be the next tool to ease monetary
                                                                                                                                                           conditions. We maintain our view that the CNB board will keep the policy rate unchanged
                                                                                                                                                           until end-2013 and that central bank intervention to weaken the koruna versus the euro is
                                                                                                                                                           imminent, unless the exchange rate weakens considerably. However, in our view, the CNB
                                                                                                                                                           is unlikely to announce regular FX purchases or to set any specific targets for the
                                                                                                                                                           EURCZK exchange rate level.

 Exhibit 104: Czech Republic’s core inflation                                                                                                                                                                                                                                                                                                       Exhibit 105: Czech Republic’s food price inflation
    4    09        10        10        10        10        10        10        10        10    10    10    10   10   11   11   11


                                                                                                                                    CS core, 3m% ann.
                                                                                                                                    11    11    11    11        11        11        11        11        11        12        12        12        12        12        12        12        12        12        12        12        12        13


                                                                                                                                                                                                                                                                                                                                               4         20                                 Food CPI, 3m% ann.           20
                                                                                                                                    CS core, %yoy                                                                                                                                                                                                                                           Food CPI, %yoy
    3                                                                                                                                                                                                                                                                                                                                          3         15                                                              15
    2                                                                                                                                                                                                                                                                                                                                          2
                                                                                                                                                                                                                                                                                                                                                         10                                                              10
    1                                                                                                                                                                                                                                                                                                                                          1
                                                                                                                                                                                                                                                                                                                                                           5                                                             5
    0                                                                                                                                                                                                                                                                                                                                          0
                                                                                                                                                                                                                                                                                                                                                           0                                                             0
   -1                                                                                                                                                                                                                                                                                                                                          -1

   -2                                                                                                                                                                                                                                                                                                                                          -2         -5                                                             -5

   -3                                                                                                                                                                                                                                                                                                             -3                                    -10                                                             -10
   Dec-09                                                                                            Dec-10                                                                    Dec-11                                                                                                                       Dec-12                                        Dec-09                  Dec-10             Dec-11       Dec-12

 *Headline inflation target for 2012 is 2% with a permissible fluctuation band of +/-1%.                                                                                                                                                                                                                                                            Source: Eurostat, Credit Suisse
 Source: Eurostat, Credit Suisse


                                                                                                                                                           In Hungary, headline CPI inflation moderated further to 5.0% in December from 5.2% in
                                                                                                                                                           November and its recent high of 6.6% yoy in September, driven primarily by the
                                                                                                                                                           moderation in alcohol, tobacco and energy price inflation, but remained above the central


Global Inflation Watch                                                                                                                                                                                                                                                                                                                                                                                                        45
                                                                                                                                                                                                                                                                                                                                                                                          29 January 2013



                                                                                                                                                                       bank’s medium-term target of 3.0% yoy. The run-rate of core inflation edged slightly lower
                                                                                                                                                                       to 2.1% in December from about 2.3% in October-November (Exhibit 106). Meanwhile, the
                                                                                                                                                                       run-rate of food price inflation declined notably to 1.9% in December from 7.8% in
                                                                                                                                                                       November and its recent peak of 18.2% in September (Exhibit 107).
                                                                                                                                                                       We project that CPI inflation will moderate to around 3.5% yoy in April 2013 before
                                                                                                                                                                       grinding higher to 5.0% by end-2013, thus remaining above the central bank’s medium-
                                                                                                                                                                       term target throughout this year. Nevertheless, we believe that this is unlikely to deter the
                                                                                                                                                                       MC from lowering the policy rate further, from 5.75% currently to 5.00% by end-2013, to
                                                                                                                                                                       support recovery in the flagging domestic demand.

 Exhibit 106: Hungary’s core inflation                                                                                                                                                                                                                                                                                             Exhibit 107: Hungary’s food price inflation
     9       09   10   10   10    10    10        10        10        10        10        10        10        10        11        11        11    11    11   11   11   11    11        11        11        11        12        12        12        12        12        12        12        12    12    12   12   12   13


                                                                                                                                                                                                                                                                                                                               9        18                           Food CPI, 3m% ann.           18
                                                                                                                             CS core, 3m% ann.
                                                                                                                                                                                                                                                                                                                                                                     Food CPI, %yoy
                                                                                                                             CS core, %yoy
                                                                                                                                                                                                                                                                                                                                        12                                                        12
     6                                                                                                                                                                                                                                                                                                                         6
                                                                                                                                                                                                                                                                                                                                         6                                                        6

                                                                                                                                                                                                                                                                                                                                         0                                                        0
     3                                                                                                                                                                                                                                                                                                                         3
                                                                                                                                                                                                                                                                                                                                        -6                                                        -6

    0                                                                                                                                                                                                                                                                                                        0                         -12                                                       -12
    Dec-09                                                                                Dec-10                                                                                  Dec-11                                                                                                               Dec-12                            Dec-09                 Dec-10         Dec-11      Dec-12

 *Medium-term headline inflation target has been 3% since 2007.                                                                                                                                                                                                                                                                    Source: Eurostat, Credit Suisse
 Source: Eurostat, Credit Suisse


                                                                                                                                                                       In Poland, the run-rate of core inflation edged slightly lower to 1.4% in December from
                                                                                                                                                                       1.5% in November (Exhibit 108), and year-on-year CPI inflation moderated from 2.8% in
                                                                                                                                                                       November to 2.4% in December, marginally below the central bank’s target of 2.5% yoy.
                                                                                                                                                                       The drop in year-on-year CPI inflation was driven by core and energy prices. Meanwhile,
                                                                                                                                                                       the run-rate of food price inflation picked up notably to 3.3% in December after remaining
                                                                                                                                                                       at about 0% for three consecutive months (Exhibit 109). We project that headline CPI
                                                                                                                                                                       inflation will pick up modestly in 1H 2013 and reach 2.6% by mid-2013 before increasing
                                                                                                                                                                       further to 3.2% by end-2013. Nevertheless, we believe that the Monetary Policy Council
                                                                                                                                                                       (MPC) will cut the policy rate once again by 25bps, at its next meeting on 5-6 February to
                                                                                                                                                                       3.75%.

 Exhibit 108: Poland’s core inflation                                                                                                                                                                                                                                                                                              Exhibit 109: Poland’s food price inflation
         6        09   10   10   10    10    10        10        10        10        10        10        10        10        11        11    11    11   11   11   11   11   11    11        11        11        12        12        12        12        12        12        12        12    12    12   12   12   13


                                                                                                                                                                                                                                                                                                                           6            15                           Food CPI, 3m% ann.           15
                                                                                                              CS core, 3m% ann.
                                                                                                                                                                                                                                                                                                                                                                     Food CPI, %yoy
                                                                                                              CS core, %yoy
         5                                                                                                                                                                                                                                                                                                                 5
                                                                                                                                                                                                                                                                                                                                        10                                                        10
         4                                                                                                                                                                                                                                                                                                                 4

         3                                                                                                                                                                                                                                                                                                                 3
                                                                                                                                                                                                                                                                                                                                          5                                                       5
         2                                                                                                                                                                                                                                                                                                                 2

         1                                                                                                                                                                                                                                                                                                                 1
                                                                                                                                                                                                                                                                                                                                          0                                                       0
         0                                                                                                                                                                                                                                                                                                                 0

      -1                                                                                                                                                                                                                                                                                               -1                                -5                                                      -5
      Dec-09                                                                               Dec-10                                                                                 Dec-11                                                                                                         Dec-12                                  Dec-09                 Dec-10         Dec-11      Dec-12

 *Headline inflation target has been 2.5% with a permissible fluctuation band of +/-1% since 2004.                                                                                                                                                                                                                                 Source: Eurostat, Credit Suisse
 Source: Eurostat, Credit Suisse




Global Inflation Watch                                                                                                                                                                                                                                                                                                                                                                                 46
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                29 January 2013



                                                                                                                                                                                                                     In Romania, the headline inflation bounced back to 5.0% yoy while the run-rate of core
                                                                                                                                                                                                                     inflation declined slightly to an 18-month low of 2.7% in December from 3.0% in October
                                                                                                                                                                                                                     and November, on our estimates, which is within the central bank’s permissible fluctuation
                                                                                                                                                                                                                     band of 2%-4% for headline inflation (Exhibit 110). The run-rate of core inflation in
                                                                                                                                                                                                                     Romania has been range-bound between 2.7% and 3.7% in the past 18 months.
                                                                                                                                                                                                                     Meanwhile, the run-rate of food price inflation continued to decrease sharply to 2.4% in
                                                                                                                                                                                                                     December from about 10% in November and as high as 22% in September (Exhibit 111).

 Exhibit 110: Romania’s core inflation                                                                                                                                                                                                                                                                                                                                                                   Exhibit 111: Romania’s food price inflation
  10    09        10        10        10        10        10        10        10        10        10        10        10        10        11        11        11        11        11        11        11        11        11        11        11        11        12        12        12        12        12        12        12        12        12        12        12        12        13


                                                                                                                                                                                                                                                                                                                                                                                                    10        25                                Food CPI, 3m% ann.                        25
                                                                                                                                                                                                 CS core, 3m% ann.                                                                                                                                                                                                                              Food CPI, %yoy
                                                                                                                                                                                                 CS core, %yoy                                                                                                                                                                                                20                                                                          20
    8                                                                                                                                                                                                                                                                                                                                                                                               8
                                                                                                                                                                                                                                                                                                                                                                                                              15                                                                          15

    6                                                                                                                                                                                                                                                                                                                                                                                               6         10                                                                          10
                                                                                                                                                                                                                                                                                                                                                                                                                5                                                                         5
    4                                                                                                                                                                                                                                                                                                                                                                                               4           0                                                                         0
                                                                                                                                                                                                                                                                                                                                                                                                               -5                                                                         -5
    2                                                                                                                                                                                                                                                                                                                                                                                               2
                                                                                                                                                                                                                                                                                                                                                                                                             -10                                                                          -10
   0                                                                                                                                                                                                                                                                                                                                                         0                                               -15                                                                          -15
   Dec-09                                                                                                   Dec-10                                                                                                              Dec-11                                                                                                                 Dec-12                                                  Dec-09                    Dec-10                  Dec-11             Dec-12

 *Headline inflation target for 2012 is 3% with a permissible fluctuation band of +/-1%.                                                                                                                                                                                                                                                                                                                 Source: Eurostat, Credit Suisse
 Source: Eurostat, Credit Suisse


                                                                                                                                                                                                                     In Israel, the headline inflation accelerated to 1.6% yoy in December from 1.4% yoy in
                                                                                                                                                                                                                     November driven by the pick-up in food and housing prices. The run-rate of core inflation
                                                                                                                                                                                                                     increased sharply to 1.2% in December after remaining in negative territory for the six
                                                                                                                                                                                                                     consecutive months, mainly due to the pick-up in housing prices. This is slightly above the
                                                                                                                                                                                                                     lower end of the central bank’s headline inflation target range of 1.0%-3.0% (Exhibit 112).
                                                                                                                                                                                                                     However, the run-rate of food price inflation in Israel declined further to about nil in
                                                                                                                                                                                                                     December after falling sharply in November (Exhibit 113).
                                                                                                                                                                                                                     The Monetary Committee (MC) kept the policy rate on hold at 1.75% on 28 January after
                                                                                                                                                                                                                     it cut the policy rate by 25bps in late December. In our understanding, the MC will continue
                                                                                                                                                                                                                     to target real GDP growth as long as inflation dynamics remains benign, and we expect
                                                                                                                                                                                                                     the MC to remain dovish through H1 2013 based on our real GDP growth outlook. We
                                                                                                                                                                                                                     project that real GDP growth pace will moderate to 2.5% qoq saar (seasonally adjusted
                                                                                                                                                                                                                     annual rate) in Q1 2013 from 2.9% qoq saar in Q4.

 Exhibit 112: Israel’s core inflation                                                                                                                                                                                                                                                                                                                                                                    Exhibit 113: Israel’s food price inflation
    8        09        10        10        10        10        10        10        10        10        10        10        10        10        11        11        11        CS core, 3m% ann.
                                                                                                                                                                             11        11        11        11        11        11        11        11        11        12        12        12        12        12        12        12        12        12        12        12        12        13


                                                                                                                                                                                                                                                                                                                                                                                                    8         20                                               Food CPI, 3m% ann.         20
                                                                                                                                                                             CS core, %yoy                                                                                                                                                                                                                                                                     Food CPI, %yoy
    6                                                                                                                                                                                                                                                                                                                                                                                               6         15                                                                          15

                                                                                                                                                                                                                                                                                                                                                                                                              10                                                                          10
    4                                                                                                                                                                                                                                                                                                                                                                                               4
                                                                                                                                                                                                                                                                                                                                                                                                                5                                                                         5
    2                                                                                                                                                                                                                                                                                                                                                                                               2
                                                                                                                                                                                                                                                                                                                                                                                                                0                                                                         0
    0                                                                                                                                                                                                                                                                                                                                                                                               0          -5                                                                         -5

   -2                                                                                                                                                                                                                                                                                                                                                                  -2                                    -10                                                                          -10
   Dec-09                                                                                                        Dec-10                                                                                                                  Dec-11                                                                                                                  Dec-12                                        Dec-09                    Dec-10                  Dec-11             Dec-12

 *Headline inflation target for 2012 and 2013 is 2% with a permissible fluctuation band of +/-1%.                                                                                                                                                                                                                                                                                                        Source: Central Bureau of Statistics, Credit Suisse
 Source: Central Bureau of Statistics, Credit Suisse




Global Inflation Watch                                                                                                                                                                                                                                                                                                                                                                                                                                                                          47
                                                                                                              29 January 2013




                         Exhibit 114: EEMEA: CPI inflation forecasts
                         % yoy, end-period

                                                                            Quarterly Forecasts
                                                 1Q’12   2Q’12   3Q’12   4Q’12     1Q’13F         2Q’13F   3Q’13F     4Q’13F
                         EEMEA                     5.1     4.9     5.9     5.2         5.5           5.5      5.3        5.2
                         Czech Republic            3.8     3.5     3.4     2.4         2.1           2.0      2.0        2.0
                         Hungary                   5.5     5.6     6.6     5.0         3.8           4.5      4.3        5.0
                         Israel                    1.9     1.0     2.1     1.6         1.4           2.1      1.7        2.3
                         Kazakhstan                4.6     4.9     5.0     6.0         6.8           6.4      5.9        6.0
                         Poland                    3.9     4.3     3.8     2.4         2.5           2.6      3.1        3.2
                         Russia                    3.7     4.3     6.6     6.6         6.8           6.0      5.8        5.7
                         South Africa              6.0     5.5     5.5     5.7         5.5           6.0      5.7        5.2
                         Turkey                   10.4     8.9     9.2     6.2         7.3           7.8      6.6        6.1
                         Ukraine                   1.9    -1.2     0.0    -0.2         2.4           6.0      6.9        8.0
                         Source: Credit Suisse




Global Inflation Watch                                                                                                    48
                                                                                                                                 29 January 2013




                                                 Latin America: Inflation update
                       Leonardo Fonseca          Brazil
                        +55 11 3701 6348
          leonardo.fonseca@credit-suisse.com     We have revised our projection for IPCA inflation to 5.4% in 2013. January’s IPCA-15
                             Nilson Teixeira     inflation reinforced the more unfavorable dynamics of consumer inflation seen in recent
                         +55 11 3701 6288        months. Year-on-year inflation measured by the indicator rose for the fourth straight month,
             nilson.teixeira@credit-suisse.com
                                                 this time from 5.8% in December to 6.0% in January. Owing to the deterioration in the
                                                 balance of risks for consumer inflation, we have revised our projection for IPCA inflation in
                                                 2013 from 5.0% to 5.4%. In addition, the following factors could deterioration further the
                                                 inflation scenario in the coming months: possibility of an increase in the refinery-gate price
                                                 of gasoline with pass-through to consumer prices; risk of lower-than-expected reduction in
                                                 electricity tariffs resulting from the cuts and renewals of the concessions of several
                                                 generation companies and transmission companies. However, we believe that inflation
                                                 should decline in 2013 versus the previous year, due to the lower upward pressure from
                                                 food prices. We maintain our view that the central bank will keep the Selic rate stable at
                                                 7.25% during 2013.


                        Casey Reckman            Argentina
                       +1 212 325 5570
           casey.reckman@credit-suisse.com       The government’s statistical agency (INDEC) reported that headline CPI inflation in
                                                 December was 1.0% mom. This was in line with our estimate and the consensus
                                                 expectation according to Bloomberg. The official 12-month inflation level rose to 10.8%
                                                 from 10.6% in December. According to INDEC, the main drivers of headline inflation last
                                                 month were transportation and communications, health, and recreation which added 3.8,
                                                 2.2 and 1.3 percentage points, respectively, to headline inflation.
                                                 Meanwhile a survey of private inflation estimates conducted by lawmakers belonging to
                                                 the opposition parties suggested that CPI inflation in December was 2.1% mom, more
                                                 than twice the level that the government acknowledged in the official data. On a 12-month
                                                 basis, this survey of private estimates showed inflation rising to 25.6% in December from
                                                 25.0% in November.
                                                 By all measures, monthly inflation has accelerated in each of the last two months despite
                                                 the sluggish nature of Argentina's economic recovery in 2H 2012. Key sources of
                                                 inflationary of inflationary pressure include faster nominal depreciation of the peso,
                                                 monetization of the fiscal deficit and wage increases. We expect these factors to remain
                                                 present in 2013 and push privately estimated inflation up to at least 30% yoy by year-end.


                          Alonso Cervera         Chile
                        +52 55 5283 3845
            alonso.cervera@credit-suisse.com     Consumer prices were unchanged in December versus November. This result was
                                                 between our estimate of a 0.1% decline and the market’s forecast of a 0.1% increase as
                                                 per a Bloomberg survey. At the core level, consumer prices rose 0.3%, slightly above our
                                                 estimate of a 0.2% increase and also higher than the consensus forecast of 0.1%. This
                                                 core measure excludes prices of fuels and fresh fruits and vegetables from the overall
                                                 index. As we had anticipated, the gap between the headline and core measures was
                                                 mainly due to the falling prices of fresh fruits and vegetables, down 7.5% versus
                                                 November. On an annual basis, headline inflation was 1.5% in December, while core
                                                 inflation was 1.3%.
                                                 In Exhibit 115 we compare annual inflation prints at the end of 2011 and 2012 for various
                                                 sub indices. We re-defined the core inflation definition in this Exhibit to make it more
                                                 comparable to US standards. Specifically, we excluded prices of foodstuffs, alcoholic
                                                 beverages, tobacco and energy from the headline index.



Global Inflation Watch                                                                                                                       49
                                                                                                                                                           29 January 2013



                         Based on our methodology, both core and non-core inflation fell from the end of 2011 to
                         the end of 2012. The decline was more pronounced, however, in the case of annual non-
                         core inflation, falling from 9.8% in December 2011to just 1.8% in December 2012. All three
                         non-core subindices fell during this period (food, energy and alcoholic beverages and
                         tobacco). Energy was the biggest contributor to this decline, as our energy price inflation
                         measure fell from 11.6% at the end of 2011 to -5.0% at the end of 2012. This decline was
                         mainly driven by the 18% drop in electricity prices last year, followed by the 2.0% drop in
                         gasoline prices. Within alcoholic beverages and tobacco, we were surprised about the
                         actual decline in wine prices in 2012 (about 2.3%) given the strength in private
                         consumption. Another contributor to lower inflation in this subindex were cigarettes, whose
                         prices rose by 9% versus an increase of 21% in 2011.
                         At the core level, annual goods inflation was -2.7% in 2012, on top declines of 5.9% in
                         2010 and 2.9% in 2011, according to our estimates. In 2012 53% of items in our core
                         goods index posted deflation. Furthermore, 38% of core goods items posting deflation last
                         year were within clothing and footwear, a trend that began a few years ago and that
                         seems to suggest that clothing prices in Chile must be very cheap by now. For example,
                         according to government price data, the price of shoes for women and men are now 60%
                         and 48% lower than at the end of 2009, while athletic clothing is now 52% cheaper than in
                         December 2009.
                         Meanwhile, the drop in annual core services inflation also appears intriguing, in light of the
                         acceleration of domestic demand last year. We estimate that core services inflation was
                         3.8% in 2012, compared to 5.2% at the end of 2011. Core service prices that rose far less
                         in 2012 than in 2011 (or that actually declined) helping achieve this result were public
                         transportation (buses, taxis, etc.), airfares, tourist packages and university tuition.
                         Benign inflation prints in 2012 will likely allow the central bank to keep the monetary policy
                         rate unchanged at 5.0% in the foreseeable future, despite the persistent strength of
                         domestic demand. We maintain our view that the next move by the central bank will be a
                         rate cut, not a rate hike, and that this may happen in late 2013 on the back of what could
                         be a sharp slowdown in investment. We expect inflation to move closer to the 3.0% target
                         in 2013, partly as a lagged response to higher wage inflation, but also on anticipation of a
                         slightly weaker currency and on the low likelihood that certain key prices will just keep on
                         falling, like clothing.

                         Exhibit 115: Pro forma annual inflation in 2011-2012 and contribution* by major
                         sub-indices
                                                                                                                     Contribution Contribution
                                                                                Annual                   Annual     in percentage in percentage
                                                                              inflation in             inflation in    points in     points in   Change in
                                                                   CPI weight Dec-11 in %              Dec-12 in %       2011          2012     contribution
                         Consumer price inflation                       100.0%                   4.4                1.5               4.4               1.5               -3.0
                            Core                                         70.4%                   2.0                1.3               1.4               0.9               -0.5
                                Goods excl. foods, alcoholic             30.5%                  -2.9               -2.7              -0.9              -0.8                0.1
                                beverages and tobacco
                                Non energy services                      39.9%                   5.2                3.8               2.1               1.5               -0.6
                            Non-core                                     29.6%                   9.8                1.8               2.9               0.5               -2.4
                                Food                                     18.9%                   8.6                4.7               1.6               0.9               -0.7
                                Alcohol beverages & tobacco                2.0%                13.8                 5.5               0.3               0.1               -0.2
                                Energy                                     8.7%                11.6                -5.0               1.0              -0.4               -1.4
                         *Contribution is the result of multiplying the annual inflation rate in a given period times the weight of each index in the CPI: the total change in
                         contribution may not equal the addition of the individual contributions in the table due to rounding errors.
                         Source: Credit Suisse pro forma estimates based on INE data



                         See Q: What drove disinflation in Chile in 2012? for more details.




Global Inflation Watch                                                                                                                                                      50
                                                                                                                                                      29 January 2013



                          Daniel Chodos       Colombia
                        +1 212 325 7708
            daniel.chodos@credit-suisse.com   Inflation was 0.1% mom in December, below market expectations of 0.3% mom according
                                              to a Bloomberg survey. Inflation in December was driven by lower transportation costs
                                              (-0.1% mom, particularly declining gasoline prices which fell 0.9% mom) and mild
                                              increases in food (+0.1% mom) and housing prices (+0.1% mom). On the other hand,
                                              prices of entertainment and communications rose 1.1% and 0.8% mom, respectively.
                                              Based on our seasonal adjustment of the data, three-month annualized headline inflation
                                              fell to 1.6% in December from 3.4% in November.
                                              Consumer price inflation in Colombia ended 2012 at 2.4% yoy, down from 3.7% at year-end
                                              2011 and below the 3.0% mid-point target of the central bank. For the whole year 2012, food
                                              and regulated prices showed mild increases, driving inflation in these sub-indices lower
                                              (Exhibit 116). Year-end food inflation fell from 5.3% in 2011 to 2.5% in 2012, while inflation
                                              on regulated goods and services dropped from 5.8% in 2011 to 1.9% in 2012. The lack of
                                              adverse weather-related supply shocks resulted in a decline of 4.8% in prices of fruits and
                                              vegetables in 2012, contributing with -0.2 percentage points to the headline CPI index. In
                                              addition, the sharp drop in agricultural products helped to slowdown the increase in prices of
                                              meat, eggs and diary. Food prices represent 28.2% of the CPI index.
                                              For regulated goods, gasoline prices only rose 1.3% in 2012, down from 4.8% at year-end
                                              2011. The government adjusts the domestic price of gasoline on a monthly basis based on
                                              a formula that takes into account the price of international oil. Electricity costs also fell in
                                              2012, -0.8% yoy.
                                              Core inflation measures were also well-behaved in 2012 (Exhibit 117), reflecting the lack
                                              of demand-side inflation pressures in the economy. The most important indicators of core
                                              inflation are the core 20 index and CPI without perishable goods, fuels and public utilities
                                              and without food. Inflation measured in the core 20 index, an index that excludes the items
                                              with the highest volatility, declined from 3.9% in December 2011 to 3.2% in December
                                              2012. Consumer prices excluding food, perishables, fuel and public services remained
                                              relatively stable at 3.0% in 2012 from 3.2% in 2011, while the index excluding food and
                                              regulated prices ended 2012 at 2.6%, slightly above the 2.4% of year-end 2011.

                                              Exhibit 116: Headline versus food and
                                              regulated price inflation                                   Exhibit 117: Core inflation measures
                                              % change year-on-year                                       % change year-on-year. Core 20 excludes goods and
                                                                                                          services that have the most volatile prices

                                               14                                                             8
                                                                                     Headline inflation                             Core 20
                                               12                                                             7
                                                                                     Food inflation                                 Ex. perishable food, gasoline
                                               10                                    Regulated prices                               and public services
                                                                                                              6                     Ex. food and regulated
                                                 8
                                                                                                              5
                                                 6
                                                                                                              4
                                                 4
                                                                                                              3
                                                 2

                                                 0                                                            2

                                                -2                                                           1
                                                Dec-06           Dec-08           Dec-10        Dec-12       Dec-08 Dec-09 Dec-10 Dec-11 Dec-12
                                              Source: DANE, central bank, Credit Suisse                   Source: DANE, central bank, Credit Suisse




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                                                                                                                                        29 January 2013



                          The stronger peso helps explain the relatively stable tradable inflation, which closed the
                          year at 0.8% yoy, flat from the end of 2011. Non-tradable inflation, ended 2012 at 3.9%,
                          30bps above the level seen in December 2011, explained mostly by the higher rent costs
                          which represent 66% of that sub-index.
                          We think inflation will remain well-behaved this year. This expectation builds on the still
                          soft demand pressures in the domestic economy, the low probability of a El Niño weather
                          phenomenon at the beginning of the year and the potential benign effect (albeit small) of
                          the tax reform in domestic prices. Even though the effect of the tax reform on inflation is
                          difficult to estimate, the reform’s lower taxes on gasoline, and lower VAT taxes on
                          restaurants and other goods could translate into lower prices for these goods and services
                          in 2013. Additionally, the modest increase of 4.0% in the minimum wage should help tame
                          inflationary pressures this year, in our view. We therefore expect annual inflation for 2013
                          at 3.0%, however, we acknowledge that the risks are on the downside given the still
                          decelerating economy and (so far) absent supply shock in the agriculture sector.
                          We think that the low current inflation together with the still decelerating economy leaves
                          the door open for further cuts by the central bank in the policy rate in the first months of
                          2013. However, as the economy recovers in the second half of the year, as we expect, we
                          believe that the central bank will move to a more neutral policy stance taking the
                          benchmark rate to 5.0% by year-end or beginning of 2014.

                         Exhibit 118: Annual inflation in 2011-2012 and contribution by sub-indices
                                                                                                           Contribution in Contribution in Change in
                                                              CPI weight Annual inflation Annual inflation percentage      percentage      contributio
                                                              %          in Dec-11 in % in Dec-12 in % points in 2011 points in 2012 n
                         Headline inflation                        100               3.7              2.4         3.7            2.4           -1.3
                            Food                                  28.2               5.3              2.5         1.5            0.7           -0.8
                               Vegetables and fruits               3.7               6.6              -4.8        0.2            -0.2          -0.4
                               Cereals and oils                    5.0               4.5              5.7         0.2            0.3           0.1
                               Meat, fish, eggs and diary          8.7               4.8              2.1         0.4            0.2           -0.2
                               Others                             10.8               5.5              4.0         0.6            0.4           -0.2
                            Housing                               30.1               3.8              3.0         1.1            0.9           -0.2
                               Imputed rent                       11.3               3.3              0.0         0.4            0.4           0.1
                               Effective rent                      7.3               3.5              0.0         0.3            0.3           0.0
                            Apparel                                5.2               0.5              0.7         0.0            0.0           0.0
                            Health                                 2.4               3.6              4.3         0.1            0.1           0.0
                            Education                              5.7               4.6              4.6         0.3            0.3           0.0
                            Entertainment                          3.1              -0.3              0.5         0.0            0.0           0.0
                            Transport                             15.2               3.1              1.4         0.5            0.2           -0.2
                               Gasoline                            2.9               4.8              1.3         0.1            0.0           -0.1
                            Communications                         3.7               3.3              1.6         0.1            0.1           -0.1
                            Other                                  6.4               2.1              1.3         0.1            0.1           -0.1


                         Core inflation measures
                            Core 20*                                 -               3.9              3.2          -              -             -
                            CPI ex. food and regulated            56.5               2.4              2.6         1.3            1.4           0.1
                            CPI ex. perishable food,              78.6               3.2              3.0         2.5            2.4           -0.1
                            gasoline and public services
                            Tradables                             26.0               0.8              0.8         0.2            0.2           0.0
                            Non-tradables                         30.5               3.6              3.9         1.1            1.2           0.1
                         (*) Core 20 excludes goods and services that have the most volatile prices
                         Source: DANE, central bank, Credit Suisse


                          See Colombia: 2012 inflation recap for more details.




Global Inflation Watch                                                                                                                                52
                                                                                                                                                                                                                                            29 January 2013



                          Alonso Cervera       Mexico
                        +52 55 5283 3845
            alonso.cervera@credit-suisse.com   Monthly inflation figures for December were slightly below our and the market’s estimates.
                                               Specifically, headline inflation was 0.23%, compared to our estimate of 0.28% and to the
                                               average market estimate of 0.35%, while monthly core inflation was 0.12%, versus our
                                               estimate of 0.19% and the market expectation of 0.23%. Based on these figures, annual
                                               headline inflation closed 2012 at 3.6%, the lowest since April 2012, while annual core
                                               inflation closed at 2.9%, the lowest print on record.
                                               The main source of the inflation surprise in December, relative to our estimates, came from
                                               core services, mainly due to a steep monthly fall of 20% in prices of mobile
                                               telecommunication services. This particular item, which carries a weight of 1.45% in the
                                               consumer price index (1.89% in the core index), posted a decline of 46% in all of 2012, with
                                               most of it coming in the fourth quarter of the year (cumulative decline of 38% in the quarter).
                                               The drop in prices of mobile telecommunication services seems to be reflecting greater
                                               competition in the industry. From where we sit, however, it is difficult to track these prices in real
                                               time, let alone forecast them, given the variety of services and packages that go into this price
                                               item. This, in our view, explains most of the inflation surprises out of Mexico in recent months.
                                               If we exclude prices of mobile telecommunication services from the consumer price index,
                                               annual headline inflation would have closed 2012 at 4.2% as opposed to the actual 3.6%
                                               (Exhibit 119). If we exclude them from the core index, annual core inflation would have
                                               closed 2012 at 3.7% as opposed to the actual 2.9% (Exhibit 120). Finally, if we exclude
                                               them from the core services index, annual core services inflation would have been 2.6%
                                               as opposed to the actual 1.2%.

                                               Exhibit 119: Annual headline inflation                                                                          Exhibit 120: Annual core inflation
                                               %, MTP refers to mobile telecommunication prices                                                                %, MTP refers to mobile telecommunication prices

                                               5                                                                                                               5
                                                                                                                                                                                                            Core ex-MTP

                                                                                                                                                                                                            Core
                                               4                                                                                                               4



                                               3                                                   Headline ex-MTP                                             3

                                                                                                   Headline

                                               2                                                                                                               2
                                                   Jan-12




                                                                                                Jun-12
                                                                                                         Jul-12




                                                                                                                                                                   Jan-12




                                                                                                                                                                                                                Jun-12
                                                                                                                                                                                                                         Jul-12
                                                                     Mar-12
                                                            Feb-12




                                                                                                                  Aug-12
                                                                                                                           Sep-12




                                                                                                                                                                            Feb-12




                                                                                                                                                                                                                                  Aug-12
                                                                                                                                                                                                                                           Sep-12
                                                                                                                                                                                     Mar-12




                                                                                                                                                                                                                                                             Nov-12
                                                                                                                                                                                                                                                                      Dec-12
                                                                                                                                             Nov-12
                                                                                                                                                      Dec-12
                                                                              Apr-12
                                                                                       May-12




                                                                                                                                                                                              Apr-12
                                                                                                                                                                                                       May-12
                                                                                                                                    Oct-12




                                                                                                                                                                                                                                                    Oct-12

                                               Source: INEGI, Credit Suisse                                                                                    Source: INEGI, Credit Suisse



                                               In Exhibit 121 we compare annual inflation results by subindex in selected periods
                                               (December 2011, September 2012 and December 2012). We show that the modest decline
                                               in annual headline inflation between the end of 2011 and the end of 2012 was driven core
                                               inflation, since non-core inflation rose in this period. Within core inflation, three of five
                                               subindices posted higher inflation at year-end 2012 than at year-end 2011 (non-food
                                               merchandise, housing and education), but this was offset mainly by the steep fall in core
                                               services prices excluding housing and education, and to a lesser extent by core food inflation.
                                               Meanwhile, the slight acceleration in non-core inflation from 5.3% at year-end 2011 to 5.7%
                                               at year-end 2012 was driven by agricultural prices. Within agricultural prices, fruits and
                                               vegetables accounted for 0.1 percentage points of annual headline inflation as of the end of
                                               2012, compared to a contribution of -0.2 percentage points at the end of 2011. Lower
                                               inflation within the energy and government authorized price subindex (from 2.4% at the end
                                               of 2011 to just 0.5% at the end of 2012) did not fully offset the rise in agricultural prices.


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                                                                                                                                                29 January 2013



                                             Finally, in this same exhibit we show that the disinflation in the final quarter of 2012 was
                                             mainly driven by core services excluding education and housing (mainly thanks to lower
                                             telecommunication prices), and by agricultural prices (particularly fruits and vegetables).
                                             We note that egg prices, which were among the main drivers of the inflation spike in the
                                             summer of 2012 after rising by 46% in the third quarter, are yet to show a downward trend.
                                             In fact, the behavior of egg prices at the wholesale level in late 2012 does not suggest that
                                             a decline in retail prices is in store in early 2013.

                                             Exhibit 121: Annual inflation by subindex
                                                                                              Annual inflation (%)            Contribution to annual inflation
                                                                                            Dec-11     Sep-12        Dec-12   Dec-11        Sep-12        Dec-12
                                             Headline inflation                                3.8         4.8          3.6       3.8           4.8              3.6
                                              Core                                             3.4         3.6          2.9       2.6           2.8              2.2
                                                Goods                                          4.5         5.2          5.0       1.6           1.8              1.7
                                                     Processed foods, beverages & tobacco      7.3         6.9          6.1       1.1           1.0              0.9
                                                     Other                                     2.4         4.0          4.1       0.5           0.8              0.8
                                                Services                                       2.4         2.3          1.2       1.0           0.9              0.5
                                                     Housing                                   2.0         2.0          2.1       0.4           0.4              0.4
                                                     Education                                 4.2         4.5          4.5       0.2           0.2              0.2
                                                     Other services                            2.3         1.9         -0.7       0.4           0.3          -0.1
                                              Non-core                                         5.3         8.8          5.7       1.2           2.1              1.3
                                                Agriculture                                    3.7        16.0          9.2       0.3           1.3              0.7
                                                     Fruits and vegetables                    -4.4        13.4          2.9       -0.2          0.5              0.1
                                                     Meats and eggs                            9.8        17.7         13.2       0.5           0.9              0.6
                                                Energy and government authorized prices        6.2         4.7          3.8       0.9           0.7              0.6
                                                     Energy                                    8.3         7.5          5.6       0.8           0.7              0.5
                                                     Government authorized                     2.4         0.1          0.5       0.1           0.0              0.0
                                             Source: INEGI, Credit Suisse



                                             See Mexico: Low inflation thanks to falling telecom prices for more details.


                        Casey Reckman
                       +1 212 325 5570
                                             Venezuela
           casey.reckman@credit-suisse.com
                                             Caracas CPI rose 2.9% mom in December, while 12-month headline inflation increased to
                                             19.5% from 18.2% in November. This was the fastest monthly increase since May 2011
                                             and follows a rise of 2.0% in November. Last month’s increase was driven by higher prices
                                             in sub-indices, including food and non-alcoholic beverages (up 5.7% mom), transport (up
                                             3.3% mom), restaurants and hotels (up 3.1% mom), and clothing and shoes (up 3.1%
                                             mom). Twelve-month food inflation rose to 24.0% in December, from 18.8% in November,
                                             although it remained down sharply from 34.1% at year-end 2011.
                                             Faster month-on-month inflation may be related to lower public sector imports and limited
                                             access to foreign exchange in recent months. Public sector imports have likely slowed
                                             since President Chavez’s re-election in early October. This is supported by the fact that
                                             the central bank’s scarcity indicator rose 11.6% in December while the diversity of good
                                             index fell 10.7%. It also seems that reduced supplies of dollar bonds in the central bank’s
                                             SITME dollar-denominated bond market, where participants can use bolivares to purchase
                                             dollar bonds at an exchange rate of 5.3 bolivares per USD, forced more importers to
                                             access foreign exchange at the much weaker unofficial exchange rate (which recently
                                             surpassed 17.0 bolivares per USD). The government’s foreign exchange administrator,
                                             CADIVI, may also be selling fewer dollars to importers of “essential goods,” including food,
                                             which was among the sub-indices that rose most in November and December. The
                                             exchange rate used by CADIVI is currently 4.3 bolivares per USD. It is widely expected
                                             that both the CADIVI and SITME exchange rates will be devalued by at least 40% once


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                                                                                                       29 January 2013



                         current political uncertainties are resolved, which may be a factor in the reduction of the
                         supply in SITME and the weakening of the unofficial exchange rate. We project headline
                         inflation to accelerate to 28.5% yoy by December 2013 from 19.5% in 2012 mainly driven
                         by an albeit postponed devaluation of the official exchange rates, wage increases, and
                         administered price adjustments. The January inflation result will be released between 5-14
                         February. We forecast that January inflation to rise up to 3.1% mom, resulting in an annual
                         inflation rate of 21.4% yoy.




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                                                                                                                                29 January 2013




                         Key inflation indicators in the month ahead

                              Date        Indicator                                                 Last          Forecast
                              31 Jan      German CPI, m/m% / y/y% (Jan P)                       0.9% / 2.1%
                              31 Jan      Spanish HICP, y/y% (Jan P)                                2.9%
                              31 Jan      Euro area Flash HICP, y/y% (Jan)                          2.2%            2.2%
                              31 Jan      Korean CPI, y/y% (Jan)                                    1.4%
                              1 Feb       Indonesian CPI, y/y% (Jan)                                4.3%
                              1 Feb       Thai CPI, y/y% (Jan)                                      3.6%
                              1 Feb       Kazahstan CPI, y/y% (Jan)                                 6.0%            6.1%
                              4 Feb       Colombian CPI, m/m% / y/y% (Jan)                      0.1% / 2.4%     0.4% / 2.1%
                              4 Feb       Turkish CPI, y/y% (Jan)                                   6.2%            7.3%
                              5 Feb       Taiwanese CPI, y/y% (Jan)                                 1.6%
                              5 Feb       Italian HICP, m/m% / y/y% (Jan P)                     0.3% / 2.6%
                              5 Feb       Philippine CPI, y/y% (Jan)                                2.9%
                             5-6 Feb      Russian CPI, y/y% (Jan)                                   6.6%            6.8%
                            5-14 Feb      Venezuelan CPI, m/m% / y/y% (Jan)                     2.9% / 19.5%    3.1% / 21.4%
                             6-7 Feb      Ukrainian CPI, y/y% (Jan)                                -0.2%            0.1%
                              7 Feb       Brazilian CPI (IPCA), m/m% / y/y% (Jan)               0.8% / 5.8%     1.0% / 6.2%
                              7 Feb       Mexican CPI, m/m% / y/y% (Jan)                        0.2% / 3.6%     0.3% / 3.2%
                              8 Feb       German CPI, m/m% / y/y% (Jan F)                       0.9% / 2.1%
                              8 Feb       Chilean CPI, m/m% / y/y% (Jan)                        0.0% / 1.5%     -0.1% / 1.3%
                              8 Feb       Chinese CPI, y/y% (Jan)                                   2.5%
                             11 Feb       Czech Republic CPI, y/y% (Jan)                            2.4%            2.3%
                             12 Feb       UK CPI, m/m% / y/y% (Jan)                             0.5% / 2.7%     -0.4% / 2.8%
                             14 Feb       Indian WPI, y/y% (Jan)                                    7.2%
                             14 Feb       Hungarian CPI, y/y% (Jan)                                 5.0%            4.0%
                             15 Feb       Spanish HICP, m/m% / y/y% (Jan F)                     0.1% / 2.9%
                             15 Feb       Argentinean CPI, m/m% / y/y% (Jan)                    1.0% / 10.8%    0.9% / 10.8%
                             15 Feb       Polish CPI, y/y% (Jan)                                    2.4%            2.8%
                             15 Feb       Israeli CPI, y/y% (Jan)                                   1.6%            1.5%
                             20 Feb       French HICP, m/m% / y/y% (Jan)                        0.3% / 1.3%     -0.2% / 1.5%
                             20 Feb       Malaysian CPI, y/y% (Jan)                                 1.2%
                             20 Feb       South African CPI, y/y% (Jan)                             5.7%            5.7%
                             21 Feb       US CPI, m/m% / y/y% (Jan)                             0.0% / 1.7%     0.0% / 1.6%
                             22 Feb       Euro area HICP, m/m% / y/y% (Jan)                     0.4% / 2.2%     -0.9% / 2.2%
                             22 Feb       Italian HICP, m/m% / y/y% (Jan F)                     0.3% / 2.6%
                             22 Feb       Hong Kong CPI, y/y% (Jan)                                 3.7%
                             22 Feb       Canadian CPI, m/m% / y/y% (Jan)                       -0.6% / 0.8%    0.2% / 0.6%
                             25 Feb       Singapore CPI, y/y% (Jan)                                 4.3%
                              1 Mar       Japanese CPI Ex-Fresh/ Ex-Food % Energy, y/y% (Jan)   -0.2% / -0.6%   -0.2% / -0.5%
                         Source: Credit Suisse




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 Exhibit 122: US CPI Forecast
 Base period 1982-1984=100
                                                                                   Purchasing power   Retail gasoline
                                CPI          CPI      Core CPI    CPI   Core CPI      of a 1982-84  price assumptions
                              NSA Index   SA, mom%   SA, mom%    yoy%    yoy%       consumer dollar    NSA, $/gallon
         Dec-12                229.601       0.0        0.1       1.7     1.9           0.436              3.38
        CS Fcst
         Jan-13                230.220       0.0        0.1       1.6      1.8          0.434              3.41
         Feb-13                231.263       0.4        0.1       1.6      1.8          0.432              3.54
         Mar-13                232.290       0.0        0.1       1.3      1.7          0.430              3.65
         Apr-13                232.934       0.0        0.1       1.2      1.6          0.429              3.73
         May-13                233.137      -0.1        0.1       1.4      1.5          0.429              3.70
         Jun-13                233.461       0.3        0.1       1.7      1.4          0.428              3.67
         Jul-13                233.561       0.3        0.2       1.9      1.5          0.428              3.62
         Aug-13                233.844       0.2        0.2       1.5      1.6          0.428              3.58
        Sept-13                233.837       0.1        0.2       1.1      1.6          0.428              3.46
         Oct-13                233.590       0.1        0.2       1.0     1.6           0.428              3.37
         Nov-13                233.464       0.1        0.2       1.4      1.6          0.428              3.34
         Dec-13                233.407       0.2        0.2       1.7      1.7          0.428              3.32
         Jan-14                234.362       0.2        0.2       1.8      1.8          0.427
         Feb-14                234.860       0.2        0.2       1.6      1.8          0.426
         Mar-14                236.381       0.2        0.2       1.8      1.9          0.423
         Apr-14                237.440       0.2        0.2       1.9      1.9          0.421
         May-14                238.264       0.2        0.2       2.2      2.0          0.420
         Jun-14                238.248       0.2        0.2       2.1     2.1           0.420
         Jul-14                238.179       0.2        0.2       2.0      2.1          0.420
         Aug-14                238.497       0.2        0.2       2.0      2.1          0.419
         Sep-14                238.632       0.2        0.2       2.1      2.1          0.419
         Oct-14                238.621       0.2        0.2       2.2     2.1           0.419
         Nov-14                238.666       0.2        0.2       2.2      2.2          0.419
         Dec-14                238.499       0.2        0.2       2.2      2.2          0.419
 Source: BLS, Credit Suisse




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                                                                                                        29 January 2013




 Exhibit 123: Canada CPI Forecast
 Base period 2002=100
                                 CPI           CPI     BoC Core CPI      CPI      BoC Core CPI    CPI   BoC Core CPI
                               NSA Index    SA, mom%    SA, mom%      NSA, mom%   NSA, mom%      yoy%      yoy%
 Dec-12                         121.200       -0.1         0.1           -0.6         -0.6       0.8        1.1
 CS Fcst
 Jan-13                         121.384       0.2          0.0           0.2          0.1        0.6        1.0
 Feb-13                         121.849       0.1          0.0           0.4          0.3        0.5        0.9
 Mar-13                         122.202       0.0          0.1           0.3          0.3        0.4        1.0
 Apr-13                         122.531       0.0          0.4           0.3          0.4        0.3        0.9
 May-13                         122.991       0.1          -0.1          0.4          0.2        0.7        1.0
 Jun-13                         122.974       0.2          0.3           0.0          -0.1       1.1        1.3
 Jul-13                         123.099       0.1          0.1           0.1          0.0        1.3        1.4
 Aug-13                         123.181       0.2          0.1           0.1          0.2        1.1        1.2
 Sep-13                         123.441       0.2          0.1           0.2          0.3        1.2        1.4
 Oct-13                         123.409       0.1          0.1           0.0          0.3        1.0        1.4
 Nov-13                         123.878       0.5          0.3           0.4          0.2        1.6        1.6
 Dec-13                         123.768       0.3          0.0           -0.1         -0.4       2.1        1.8
 Jan-14                         123.782       0.1          0.2           0.0          0.1        2.0        1.8
 Feb-14                         124.249       0.0          0.0           0.4          0.3        2.0        1.8
 Mar-14                         124.549       0.0          0.2           0.2          0.4        1.9        1.9
 Apr-14                         124.788       -0.1         0.4           0.2          0.4        1.8        1.9
 May-14                         125.215       0.1          0.0           0.3          0.3        1.8        2.0
 Jun-14                         125.095       0.2          0.3           -0.1         -0.1       1.7        2.0
 Jul-14                         125.173       0.1          0.1           0.1          0.0        1.7        2.0
 Aug-14                         125.267       0.2          0.1           0.1          0.2        1.7        2.0
 Sep-14                         125.517       0.2          0.1           0.2          0.3        1.7        2.0
 Oct-14                         125.799       0.3          0.2           0.2          0.4        1.9        2.1
 Nov-14                         126.302       0.5          0.3           0.4          0.2        2.0        2.1
 Dec-14                         126.192       0.3          0.0           -0.1         -0.4       2.0        2.1
 Source: Statistics Canada, Credit Suisse




Global Inflation Watch                                                                                                 58
Global Inflation Watch



                         Exhibit 124: Euro area HICP inflation projections
                                                                             Euro area HICP                                        Euro area HICP ex-tobacco         French CPI ex-tobacco
                                                 Total   Food     Alcohol,           Energy            Core CPI
                                                                  tobacco                      Total    Core goods      Services
                         Weight                  1000     153          40               104     703               289       414
                                    Sep-12        2.6     2.7         4.0                9.1    1.5               1.2        1.7         115.97                2.6       124.74              1.84
                                    Oct-12        2.5     2.9         4.0                8.0    1.5               1.1        1.7         116.21                2.4       124.81              1.69
                                    Nov-12        2.2     2.9         3.7                5.7    1.4               1.1        1.6         115.97                2.1       124.61              1.31
                                    Dec-12        2.2     3.0         3.6                5.2    1.5               1.0        1.8         116.39                2.2       125.02              1.22
                                    Jan-13        2.2     3.2         3.7                3.3    1.7               1.6        1.7         115.30                2.1       124.74              1.37
                                    Feb-13        1.9     2.8         3.9                2.3    1.5               1.3        1.7         115.60                1.8       124.98              1.13
                                    Mar-13        1.6     2.8         3.9                0.7    1.3               0.7        1.7         116.70                1.5       125.69              0.85
                                    Apr-13        1.5     2.8         3.8                0.0    1.3               0.8        1.5         117.10                1.3       125.88              0.87
                                    May-13        1.7     2.9         3.8                1.4    1.3               0.8        1.6         117.20                1.6       126.04              1.05
                                    Jun-13        1.8     2.5         4.2                3.1    1.3               0.8        1.6         117.20                1.7       126.24              1.17
                                     Jul-13       1.7     2.7         4.5                2.4    1.3               0.7        1.6         116.50                1.6       125.53              1.05
                                    Aug-13        1.6     2.5         4.8                0.2    1.4               1.1        1.6         116.80                1.5       126.17              0.89
                                    Sep-13        1.4     2.3         5.1               -0.8    1.4               0.9        1.7         117.50                1.3       126.04              1.04
                                    Oct-13        1.5     2.0         4.6                0.0    1.5               1.0        1.7         117.80                1.4       126.21              1.12
                                    Nov-13        1.7     1.9         4.9                1.4    1.5               0.9        1.8         117.70                1.5       126.22              1.29
                                    Dec-13        1.7     1.8         5.3                2.0    1.4               0.8        1.6         118.10                1.5       126.58              1.25
                                    Jan-14        1.8     1.9         5.3                2.1    1.5               1.0        1.7         117.20                1.6       127.03              1.84
                                    Feb-14        1.8     1.9         5.3                2.0    1.5               1.0        1.8         117.50                1.6       127.46              1.98
                                    Mar-14        1.9     2.0         5.3                2.0    1.5               1.1        1.8         118.70                1.7       128.19              1.99
                                    Apr-14        1.9     2.0         5.3                2.0    1.5               1.0        1.8         119.10                1.7       128.37              1.98
                                    May-14        1.9     2.1         5.3                2.0    1.5               1.0        1.8         119.20                1.7       128.53              1.98
                                    Jun-14        1.9     2.1         5.3                2.0    1.5               1.0        1.8         119.20                1.7       128.72              1.96
                                     Jul-14       1.8     2.1         5.2                1.9    1.4               0.9        1.6         118.40                1.6       127.95              1.93
                                    Aug-14        1.8     2.1         5.1                1.9    1.4               0.9        1.6         118.70                1.6       128.59              1.92
                                    Sep-14        1.8     2.1         5.1                1.9    1.4               0.9        1.6         119.40                1.6       128.47              1.93
                                    Oct-14        1.8     2.1         5.1                1.9    1.4               1.0        1.6         119.80                1.7       128.66              1.94
                                    Nov-14        1.8     2.1         5.1                1.9    1.4               1.0        1.6         119.80                1.8       128.69              1.96
                                    Dec-14        1.8     2.1         5.1                1.9    1.4               1.0        1.6         120.20                1.8       129.07              1.97
                          Annual averages
                                      2010        1.6     0.4         3.8                7.4    1.0               0.5        1.4                               1.5                            1.5
                                      2011        2.7     2.5         3.5               11.9    1.4               0.8        1.8                               2.7                            2.1
                                      2012        2.5     2.8         4.2                7.7    1.5               1.2        1.8                               2.4                            1.9
                                      2013        1.7     2.5         4.4                1.3    1.4               1.0        1.6                               1.6                            1.1




                                                                                                                                                                                                    29 January 2013
                                      2014        1.8     2.0         5.2                1.9    1.5               1.0        1.7                               1.7                            1.9
                         Source: Credit Suisse
59
Global Inflation Watch




                         Exhibit 125: UK RPI projections
                                                                                                     RPI                                                                              RPIX
                                                 Index   Total   Food   Alcohol,   Petrol   Electricity    Gas       Housing     Council tax   Mortgage    Core goods Core services
                                                                        tobacco                                   depreciation                  interest
                         Weight                          1000     114        85       47            21      21             56            41          29          213           326
                         Oct-12                  245.6    3.2     3.1       5.2      2.9          -2.4     -1.0            0.9          0.4         6.6           3.0           3.8    3.1
                         Nov-12                  245.6    3.0     3.7       4.7      1.0          -1.1     -0.1            1.1          0.4         3.2           2.7           3.5    2.9
                         Dec-12                  246.8    3.1     3.6       4.9      0.3           3.9      5.3            1.4          0.4         4.6           3.1           3.1    3.0
                         Jan-13                  246.1    3.4     3.9       5.3      0.0           3.9      5.3            1.3          0.4         4.8           3.0           3.8    3.3
                         Feb-13                  247.9    3.3     3.9       4.9      -1.9          6.7      7.6            1.4          0.4         4.9           2.7           4.0    3.2
                         Mar-13                  248.8    3.3     3.7       5.2      -4.1          7.9      8.0            1.3          0.4         5.4           2.7           4.1    3.2
                         Apr-13                  250.4    3.3     3.6       4.8      -6.6          7.9      8.7            1.3          3.0         5.4           2.8           4.1    3.1
                         May-13                  251.1    3.6     3.9       4.9      -4.2          8.0      8.7            1.4          3.0         5.2           3.2           4.2    3.4
                         Jun-13                  251.4    4.0     4.4       4.5      0.4           8.0      8.7            1.3          3.0         4.5           3.8           4.2    3.8
                         Jul-13                  251.1    3.7     4.3       3.9      0.5           8.0      8.7            1.1          3.0         4.2           3.5           4.0    3.6
                         Aug-13                  251.8    3.6     4.1       3.0      -1.9          8.0      8.7            1.3          3.0         4.1           3.4           4.3    3.5
                         Sep-13                  252.5    3.4     3.7       2.3      -5.2          8.0      8.7            1.3          3.0         4.2           3.2           4.6    3.2
                         Oct-13                  252.9    3.0     3.3       1.8      -4.9          8.5      8.7            1.5          3.0         2.2           2.5           4.2    2.9
                         Nov-13                  253.2    3.1     2.9       1.7      -3.2          6.6      6.7            1.4          3.0         5.0           2.7           4.3    2.9
                         Dec-13                  253.9    2.9     2.8       1.5      -2.2          1.5      1.2            1.2          3.0         4.7           2.4           4.5    2.8
                         Jan-14                  253.2    2.9     2.6       1.4      -2.2          1.5      1.2            1.3          3.0         4.9           2.4           4.5    2.7
                         Feb-14                  254.9    2.8     2.4       1.4      -2.1          0.0      0.0            1.4          3.0         5.0           2.4           4.5    2.7
                         Mar-14                  255.8    2.8     2.4       1.4      -1.8          0.0      0.0            1.5          3.0         5.2           2.4           4.5    2.7
                         Apr-14                  257.3    2.8     2.4       1.4      -1.7          0.0      0.0            1.6          3.0         5.3           2.4           4.5    2.7
                         May-14                  258.0    2.7     2.4       1.4      -1.8          0.0      0.0            1.7          3.0         5.4           2.4           4.5    2.7
                         Jun-14                  258.3    2.7     2.4       1.4      -1.7          0.0      0.0            1.8          3.0         5.5           2.4           4.5    2.7
                         Jul-14                  258.0    2.7     2.4       1.4      -1.6          0.0      0.0            1.9          3.0         5.5           2.4           4.5    2.7
                         Aug-14                  258.7    2.7     2.4       1.4      -1.7          0.0      0.0            2.0          3.0         5.4           2.4           4.5    2.7
                         Sep-14                  259.4    2.7     2.4       1.4      -1.6          0.0      0.0            2.1          3.0         5.3           2.4           4.5    2.7
                         Oct-14                  259.8    2.7     2.4       1.4      -1.5          0.0      0.0            2.2          3.0         5.2           2.4           4.4    2.7
                         Nov-14                  260.1    2.7     2.4       1.4      -1.6          0.0      0.0            2.3          3.0         5.1           2.4           4.4    2.7
                         Dec-14                  260.9    2.8     2.4       1.4      -1.5          0.0      0.0            2.4          3.0         5.0           2.4           4.4    2.7
                         Annual average
                         2010                             4.6     3.1       4.8     17.5          -2.4     -5.9            6.0          2.0         1.0           4.5           5.3    4.8
                         2011                             5.2     6.0       7.4     15.4           7.3     10.7           -0.9          0.6         3.1           4.1           5.0    5.3
                         2012                             3.2     3.3       5.1      2.0           5.9     11.2            0.4          0.4         2.3           2.9           3.2    3.2
                         2013                             3.4     3.7       3.6      -2.8          6.9      7.5            1.3          2.4         4.5           3.0           4.2    3.2
                         2014                             2.8     2.4       1.4      -1.7          0.1      0.1            1.9          3.0         5.2           2.4           4.5    2.7




                                                                                                                                                                                             29 January 2013
                         Source: Credit Suisse
60
Global Inflation Watch



                         Exhibit 126: UK CPI projection
                                                                                            CPI
                                                          Total   Food   Alcohol, tobacco         Energy           Core CPI
                                                                                                           Total        Core goods   Services
                         Weight                           1000     112                42             72     774               299        445
                         Oct-12                            2.7     3.4                6.5            0.5    2.6                0.5        4.1
                         Nov-12                            2.7     3.9                5.7            0.2    2.6                0.4        4.2
                         Dec-12                            2.7     3.8                6.0            2.5    2.4                0.6        3.6
                         Jan-13                            2.8     3.9                6.3            2.2    2.5                0.4        3.9
                         Feb-13                            2.8     3.9                5.9            2.7    2.5                0.2        4.0
                         Mar-13                            2.7     3.9                6.2            1.9    2.4                0.1        4.0
                         Apr-13                            2.5     3.6                5.8            1.1    2.4                0.2        3.9
                         May-13                            2.8     4.0                5.9            2.6    2.5                0.5        3.9
                         Jun-13                            3.4     4.5                5.5            4.3    3.0                1.5        4.0
                         Jul-13                            3.1     4.3                4.9            4.6    2.6                0.7        3.9
                         Aug-13                            2.9     4.0                4.0            3.1    2.6                0.7        3.9
                         Sep-13                            2.6     3.7                3.3            1.7    2.5                0.4        3.9
                         Oct-13                            2.2     3.2                2.8            1.9    2.1                0.0        3.5
                         Nov-13                            2.2     2.9                2.7            1.8    2.1                0.1        3.4
                         Dec-13                            2.1     2.9                2.5           -0.3    2.3                0.0        3.9
                         Jan-14                            2.1     2.6                2.4           -0.2    2.3                0.0        3.9
                         Feb-14                            2.0     2.4                2.4           -0.9    2.3                0.0        3.9
                         Mar-14                            2.0     2.4                2.4           -0.8    2.3                0.0        3.9
                         Apr-14                            2.0     2.4                2.4           -0.8    2.3                0.0        3.9
                         May-14                            2.0     2.4                2.4           -0.8    2.3                0.0        3.9
                         Jun-14                            2.0     2.4                2.4           -0.8    2.3                0.0        3.9
                         Jul-14                            2.0     2.4                2.4           -0.7    2.3                0.0        3.9
                         Aug-14                            2.0     2.4                2.4           -0.8    2.3                0.0        3.9
                         Sep-14                            2.0     2.4                2.4           -0.7    2.3                0.0        3.9
                         Oct-14                            2.0     2.4                2.4           -0.7    2.3                0.0        3.8
                         Nov-14                            2.0     2.4                2.4           -0.7    2.3                0.0        3.8
                         Dec-14                            2.0     2.4                2.4           -0.7    2.3                0.0        3.8
                         Annual average
                         2010                              3.3     3.4                5.5            5.7    2.9                1.9        3.6
                         2011                              4.5     5.5                8.7           12.3    3.2                1.6        4.3
                         2012                              2.8     3.2                6.1            5.1    2.3                0.7        3.5
                         2013                              2.7     3.7                4.6            2.3    2.5                0.4        3.8
                         2014                              2.0     2.5                2.4           -0.7    2.3                0.0        3.8




                                                                                                                                                29 January 2013
                         Source: Credit Suisse
61
                                                                                                        29 January 2013




 Exhibit 127: Japanese inflation projections
 y/y%

                                   "CPI ex. fresh foods"   "Foods ex. fresh foods"   Energy   "CPI ex. foods and energy"
                                                  YoY%                      YoY%      YoY%                        YoY%
 Apr-12                   Actual                     0.2                      -0.3      5.4                         -0.3
 May-12                                             -0.1                      -0.1      3.7                         -0.6
 Jun-12                                             -0.2                       0.1      2.0                         -0.6
 Jul-12                                             -0.3                       0.1      0.7                         -0.6
 Aug-12                                             -0.3                       0.0      0.8                         -0.6
 Sep-12                                             -0.1                      -0.1      4.3                         -0.6
 Oct-12                                              0.0                      -0.3      4.6                         -0.5
 Nov-12                                             -0.1                      -0.3      3.6                         -0.5
 Dec-12                                             -0.2                      -0.4      3.4                         -0.6
 Jan-13                  CS Fcst                    -0.2                      -0.1      3.6                         -0.5
 Feb-13                                             -0.3                      -0.3      3.1                         -0.9
 Mar-13                                             -0.7                      -0.3     -0.4                         -0.9
 Apr-13                                             -0.7                      -0.3     -0.2                         -0.9
 May-13                                             -0.3                      -0.2      2.3                         -0.6
 Jun-13                                              0.3                      -0.1      6.0                         -0.3
 Jul-13                                              0.3                      -0.2      5.3                         -0.2
 Aug-13                                              0.0                       0.0      3.0                         -0.5
 Sep-13                                             -0.3                      -0.2     -0.8                         -0.6
 Oct-13                                             -0.3                      -0.1      0.2                         -0.6
 Nov-13                                              0.0                      -0.2      1.8                         -0.2
 Dec-13                                              0.1                       0.0      2.2                          0.0
 Jan-14                                              0.3                      -0.3      2.1                          0.1
 Feb-14                                              0.1                      -0.1      2.2                          0.1
 Mar-14                                             -0.1                       0.0      2.4                         -0.4
 Quarterly averages
 1Q12                     Actual                     0.1                       0.3      5.5                         -0.6
 2Q12                                                0.0                      -0.1      3.7                         -0.5
 3Q12                                               -0.2                       0.0      2.0                         -0.6
 4Q12                                               -0.1                      -0.3      3.9                         -0.5
 1Q13                    CS Fcst                    -0.4                      -0.2      2.0                         -0.7
 2Q13                                               -0.2                      -0.2      2.7                         -0.6
 3Q13                                                0.0                      -0.1      2.5                         -0.4
 4Q13                                               -0.1                      -0.1      1.4                         -0.2
 1Q14                                                0.1                      -0.1      2.2                         -0.1
 Source: Credit Suisse




Global Inflation Watch                                                                                               62
                                                                                                                                                   29 January 2013




 Exhibit 128: EEMEA inflation projections, %y/y
                   Czech Republic   Hungary               Israel    Kazakhstan           Poland           Russia    South Africa          Turkey          Ukraine
 Jan-13                       2.3          4.0              1.5            6.1               2.8             6.8              5.7            7.3               0.1
 Feb-13                       2.2          3.9              1.5            6.4               2.6             6.8              5.7            7.3               0.2
 Mar-13                       2.1          3.8              1.4            6.8               2.5             6.8              5.5            7.3               2.4
 Apr-13                       2.0          3.5              1.3            6.6               2.4             6.8              5.7            6.5               3.9
 May-13                       2.0          4.4              1.6            6.4               2.7             6.6              5.8            7.6               5.4
 Jun-13                       2.0          4.5              2.1            6.4               2.6             6.0              6.0            7.8               6.0
 Jul-13                       2.0          4.7              2.1            6.3               2.9             6.0              6.2            7.7               6.4
 Aug-13                       2.0          4.3              1.6            6.1               2.9             6.0              6.1            7.0               6.7
 Sep-13                       2.0          4.3              1.7            5.9               3.1             5.8              5.7            6.6               6.9
 Oct-13                       2.0          4.6              1.9            5.7               3.1             5.7              5.3            6.1               7.3
 Nov-13                       2.0          4.9              2.5            5.8               3.2             5.7              5.3            6.5               7.8
 Dec-13                       2.0          5.0              2.3            6.0               3.2             5.7              5.2            6.1               8.0
 Jan-14                       2.0          5.0              2.3            6.1               2.9             5.7              5.2            4.6               8.5
 Feb-14                       2.0          4.9              2.3            6.1               2.9             5.7              5.3            4.7               9.0
 Mar-14                       2.0          4.9              2.1            6.1               2.8             5.7              5.3            4.8               7.9
 Apr-14                       2.0          5.0              2.2            6.1               2.9             5.7              5.4            4.8               6.8
 May-14                       2.0          5.0              2.2            6.0               2.9             5.7              5.5            4.9               6.0
 Jun-14                       2.0          5.0              2.2            6.0               2.9             5.7              5.5            4.9               6.0
 Jul-14                       2.0          5.0              2.2            6.0               2.9             5.6              5.6            5.0               6.0
 Aug-14                       2.0          5.0              2.2            5.9               2.9             5.4              5.6            5.1               6.0
 Sep-14                       2.0          5.0              2.0            5.9               2.9             5.3              5.7            5.2               6.0
 Oct-14                       2.0          4.9              2.1            5.8               2.8             5.3              5.7            5.4               6.1
 Nov-14                       2.0          4.9              2.0            5.8               2.8             5.2              5.8            5.7               6.1
 Dec-14                       2.0          4.9              2.0            5.7               2.8             5.2              5.8            5.9               6.1
 Source: Credit Suisse




 Exhibit 129: Brazil inflation projections
                             CPI                 Food at home                     Services                  Industrial products          Administered prices
 Date                     MoM       YoY           MoM               YoY           MoM              YoY          MoM               YoY        MoM               YoY
 Jan-13                  0.95%      6.2%         1.68%             11.1%         0.74%             8.4%        0.69%              2.1%      0.32%            3.5%
 Feb-13                  0.22%      6.0%         0.45%             11.6%         0.85%             8.0%        0.41%              2.1%     -1.60%            1.6%
 Mar-13                  0.29%      6.1%         0.47%             11.9%         0.40%             7.9%        0.41%              2.7%     -0.20%            1.2%
 Apr-13                  0.68%      6.1%         0.70%             12.0%         0.73%             7.8%        0.33%              2.6%      1.17%            1.9%
 May-13                  0.39%      6.2%         0.28%             11.4%         0.65%             8.3%        0.15%              2.6%      0.63%            2.2%
 Jun-13                  0.28%      6.4%         -0.47%            10.2%         0.69%             8.5%        0.11%              3.5%      0.94%            3.0%
 Jul-13                  0.21%      6.1%         -0.48%            8.8%          0.68%             8.4%       -0.01%              3.5%      0.68%            3.5%
 Aug-13                  0.32%      6.0%         -0.04%            7.8%          1.32%             9.3%       -0.37%              3.3%      0.42%            3.8%
 Sep-13                  0.44%      5.9%         0.60%             6.6%          0.76%             9.5%        0.18%              3.4%      0.12%            3.6%
 Oct-13                  0.49%      5.8%         0.94%             6.0%          0.37%             9.4%        0.48%              3.5%      0.09%            3.5%
 Nov-13                  0.50%      5.7%         0.55%             6.0%          0.45%             9.0%        0.57%              3.4%      0.16%            3.1%
 Dec-13                  0.47%      5.4%         0.58%             5.4%          0.54%             8.5%        0.47%              3.1%     -0.01%            2.7%
 Source: Credit Suisse




Global Inflation Watch                                                                                                                                          63
                                                                                                                                                                         29 January 2013




 Exhibit 130: Latin America CPI projections
                              Argentina                               Chile                            Colombia                              Mexico                  Venezuela
                              mom                 yoy              mom                 yoy             mom                 yoy             mom                 yoy    mom           yoy
           Jan-13            0.92%             10.8%            -0.10%               1.3%            0.42%               2.1%             0.32%               3.2%   3.05%       21.4%
           Feb-13            0.84%             11.0%             0.50%               1.4%            0.58%               2.1%             0.36%               3.3%   2.11%       22.7%
           Mar-13            0.99%             11.0%             0.30%               1.5%            0.29%               2.3%             0.42%               3.7%   2.27%       24.2%
           Apr-13            0.93%             11.1%             0.40%               1.9%            0.20%               2.3%            -0.03%               4.0%   2.09%       25.7%
          May-13             0.87%             11.2%             0.50%               2.4%            0.21%               2.2%            -0.60%               3.7%   2.25%       26.6%
           Jun-13            0.82%             11.3%            -0.10%               2.6%            0.22%               2.4%             0.24%               3.5%   1.88%       27.0%
            Jul-13           0.89%             11.4%             0.70%               3.3%            0.11%               2.5%             0.44%               3.3%   1.74%       28.0%
          Aug-13             0.96%             11.5%             0.20%               3.3%            0.16%               2.6%             0.26%               3.3%   1.82%       29.0%
          Sep-13             0.96%             11.6%            -0.60%               1.9%            0.19%               2.5%             0.34%               3.2%   1.71%       28.8%
           Oct-13            0.82%             11.6%             0.10%               1.4%            0.12%               2.5%             0.65%               3.3%   1.98%       29.1%
          Nov-13             0.80%             11.4%             0.20%               2.1%            0.13%               2.8%             0.90%               3.6%   2.12%       29.2%
          Dec-13             1.02%             11.4%             0.50%               2.6%            0.32%               3.0%             0.40%               3.7%   2.34%       28.5%
           Jan-14            1.02%             11.5%            -0.28%               2.4%            0.52%               3.1%             0.60%               4.0%   2.27%       27.6%
           Feb-14            0.89%             11.5%             0.28%               2.2%            0.65%               3.2%             0.29%               4.0%   2.06%       27.5%
           Mar-14            1.06%             11.6%             0.07%               2.0%            0.27%               3.2%             0.12%               3.7%   2.13%       27.3%
           Apr-14            0.98%             11.7%             0.42%               2.0%            0.16%               3.1%            -0.16%               3.5%   1.99%       27.2%
          May-14             0.94%             11.7%             0.21%               1.7%            0.20%               3.1%            -0.53%               3.6%   1.91%       26.8%
           Jun-14            0.87%             11.8%             0.07%               1.9%            0.23%               3.1%             0.23%               3.6%   1.71%       26.5%
            Jul-14           0.94%             11.9%             0.34%               1.5%            0.09%               3.1%             0.52%               3.7%   1.86%       26.7%
          Aug-14             1.03%             11.9%             0.08%               1.4%            0.14%               3.1%             0.23%               3.6%   1.90%       26.8%
          Sep-14             1.02%             12.0%             1.03%               3.1%            0.21%               3.1%             0.34%               3.6%   1.81%       26.9%
           Oct-14            0.91%             12.1%             0.53%               3.5%            0.11%               3.1%             0.59%               3.6%   1.85%       26.8%
          Nov-14             0.90%             12.2%            -0.42%               2.9%            0.13%               3.1%             0.88%               3.6%   2.07%       26.7%
          Dec-14             1.11%             12.3%             0.07%               2.4%            0.39%               3.2%             0.60%               3.8%   2.63%       27.0%
 Source: Credit Suisse

 *Note that November inflation data was available in all countries in our region except Argentina. The projection table reflects the latest data available.




Global Inflation Watch                                                                                                                                                               64
                                  GLOBAL FIXED INCOME AND ECONOMIC RESEARCH
                        Dr. Neal Soss, Managing Director                                                            Eric Miller, Managing Director
              Chief Economist and Global Head of Economic Research                                        Global Head of Fixed Income and Economic Research
                                 +1 212 325 3335                                                                            +1 212 538 6480
                           neal.soss@credit-suisse.com                                                              eric.miller.3@credit-suisse.com

US AND CANADA ECONOMICS
Dr. Neal Soss, Managing Director          Jonathan Basile, Director                    Jay Feldman, Director                           Henry Mo, Director
Head of US Economics                      +1 212 538 1436                              +1 212 325 7634                                 +1 212 538 0327
+1 212 325 3335                           jonathan.basile@credit-suisse.com            jay.feldman@credit-suisse.com                   henry.mo@credit-suisse.com
neal.soss@credit-suisse.com
Dana Saporta, Director                    Jill Brown, Vice President                   Isaac Lebwohl, Associate                        Peggy Riordan, AVP
+1 212 538 3163                           +1 212 325 1578                              +1 212 538 1906                                 +1 212 325 7525
dana.saporta@credit-suisse.com            jill.brown@credit-suisse.com                 isaac.lebwohl@credit-suisse.com                 peggy.riordan@credit-suisse.com

LATIN AMERICA ECONOMICS AND STRATEGY
Alonso Cervera, Managing Director         Casey Reckman, Vice President                Daniel Chodos, Vice President                   Di Fu, Analyst
Head of Non-Brazil Latam Economics        +1 212 325 5570                              +1 212 325 7708                                 +1 212 538 4125
+52 55 5283 3845                          casey.reckman@credit-suisse.com              daniel.chodos@credit-suisse.com                 di.fu@credit-suisse.com
alonso.cervera@credit-suisse.com          Argentina, Venezuela                         Colombia, Latam Strategy
Mexico, Chile
Nilson Teixeira, Managing Director   Daniel Lavarda, Vice President      Tales Rabelo, Vice President       Iana Ferrao, Associate           Leonardo Fonseca, Associate
Head of Brazil Economics             +55 11 3701 6352                    +55 11 3701 6353                   +55 11 3701 6345                 +55 11 3701 6348
+55 11 3701 6288                     daniel.lavarda@credit-suisse.com    tales.rabelo@credit-suisse.com     iana.ferrao@credit-suisse.com    leonardo.fonseca@credit-suisse.com
nilson.teixeira@credit-suisse.com    Brazil                              Brazil                             Brazil                           Brazil

EURO AREA AND UK ECONOMICS
Neville Hill, Managing Director           Christel Aranda-Hassel, Director             Giovanni Zanni, Director                        Violante di Canossa, Vice President
Head of European Economics                +44 20 7888 1383                             +44 20 7888 6827                                +44 20 7883 4192
+44 20 7888 1334                          christel.aranda-hassel@credit-suisse.com     giovanni.zanni@credit-suisse.com                violante.dicanossa@credit-suisse.com
neville.hill@credit-suisse.com
Axel Lang, Associate                      Steven Bryce, Analyst                        Yiagos Alexopoulos, Analyst
+44 20 7883 3738                          +44 20 7883 7360                             +44 20 7888 7536
axel.lang@credit-suisse.com               steven.bryce@credit-suisse.com               yiagos.alexopoulos@credit-suisse.com

EASTERN EUROPE, MIDDLE EAST & AFRICA ECONOMICS AND STRATEGY
Berna Bayazitoglu, Managing Director      Sergei Voloboev, Director                    Carlos Teixeira, Director                       Gergely Hudecz, Vice President
Head of EEMEA Economics                   +44 20 7888 3694                             +27 11 012 8054                                 +33 1 7039 0103
+44 20 7883 3431                          sergei.voloboev@credit-suisse.com            carlos.teixeira@credit-suisse.com               gergely.hudecz@credit-suisse.com
berna.bayazitoglu@credit-suisse.com       Russia, Ukraine, Kazakhstan                  South Africa                                    Czech Republic, Hungary, Poland
Turkey
Alexey Pogorelov, Vice President          Saad Siddiqui, Vice President                Natig Mustafayev, Associate                     Nimrod Mevorach, Associate
+7 495 967 8772                           +44 20 7888 9464                             +44 20 7888 1065                                +44 20 7888 1257
alexey.pogorelov@credit-suisse.com        saad.siddiqui@credit-suisse.com              natig.mustafayev@credit-suisse.com              nimrod.mevorach@credit-suisse.com
Russia, Ukraine, Kazakhstan               EEMEA Strategy                               EM and EEMEA cross-country analysis             EEMEA Strategy, Israel

JAPAN ECONOMICS
Hiromichi Shirakawa, Managing Director                   Takashi Shiono, Associate
+81 3 4550 7117                                          +81 3 4550 7189
hiromichi.shrirakawa@credit-suisse.com                   takashi.shiono@credit-suisse.com

NON-JAPAN ASIA ECONOMICS
Dong Tao. Managing Director               Robert Prior-Wandesforde, Director            Christiaan Tuntono, Vice President             Santitarn Sathirathai, Vice President
Head of NJA Economics                     +65 6212 3707                                 +852 2101 7409                                 +65 6212 5675
+852 2101 7469                            robert.priorwandesforde@credit-suisse.com     christiaan.tuntono@credit-suisse.com           santitarn.sathirathai@credit-suisse.com
dong.tao@credit-suisse.com                Regional, India, Indonesia                    Hong Kong, Korea, Taiwan                       Malaysia, Philippines, Thailand
China
Michael Wan, Analyst                      Weishen Deng, Analyst
+65 6212 3418                             +852 2101 7162
michael.wan@credit-suisse.com             weishen.deng@credit-suisse.com
Singapore
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Description: Inflation! Wherefore art thou, inflation?