Covid-19 still isn't done hobbling the global economy.
From the US to China and Germany, the latest data are flagging an economic slowdown as the new form of the coronavirus hits spending just as supply chain snarl ups threaten to keep inflation elevated.
Both the world's two largest economies are feeling a squeeze. The US economy is on pace for a 5.8% annualised quarter on quarter expansion in the current quarter according to Bloomberg Economics' GDP Nowcast, down from a 6.6% print in the second quarter.
In China, the Bloomberg Nowcast is tracking a 6.1% year on year expansion in the same period, down from 7.9% in the second. Its economy is dealing not just with delta, but also a government crackdown on high polluting industries, and—potentially—a blow to business confidence from the new "common prosperity" agenda.
The decelerations are faster than what economists previously expected and leave central banks and governments facing a challenging combination of slackening recovery and stubborn price pressure.
"We are not at panic stations—the data is pointing to a softer recovery, not a reversal" said Bloomberg Economists Bjorn van Roye and Tom Orlik. "Still, the latest nowcast readings are a reminder that the virus remains a significant, negative, and hard to predict variable impacting the outlook."
From US retail sales to China factory output, Bloomberg Economics' Nowcasts unite hundreds of data points to provide a high frequency read on the pace of growth and level of inflation across major economies ahead of the official data.
The latest readout for most major economies shows output poised to end the year still some distance short of the pre-Covid trend.
In normal times, that slack in the economy would mean inflation remains subdued. In the topsy-turvy world of the Covid recovery, that's not the case. Supply chain strains, high shipping costs, and elevated commodity prices mean that even as output remains below potential, inflation in many countries is above the target of central banks.
The good news for the third quarter is that the Nowcasts point to a peak and the beginnings of a decline for the US consumer price index.
The bad news is they suggest the euro area and UK will see inflation above central banks' 2% target. The picture in China looks a little different. Factory gate price gains are sky high. So far, though, consumers haven't suffered a sticker shock in the shops.
For the world's biggest central banks, a recovery losing momentum and inflation elevated means a complicated situation. A weaker recovery means pressure to add stimulus. Stubbornly high prices mean pressure to withdraw it.
The combination of the two is reminiscent of the stagflation last seen in the 1970s, and leaves Federal Reserve Chair Jerome Powell, European Central Bank President Christine Lagarde, and their peers with few easy options. The latest decision by the ECB provides an illustration of the predicament. Despite a recently concluded Strategic Review promising "forceful" action to reflate the economy, Lagarde last week announced plans to slow the pace of bond-buying.
In China, the central bank faces a different trade off—between supporting growth with easier policy and tamping down risks of a credit bubble with tighter. The latest signs suggest it is growth that will be the priority, with expectations of a move to free up funds for banks to lend in the months ahead.
For the world's most important central bank, meanwhile, sliding growth and still-high inflation hasn't yet changed the policy calculus. Powell is still on course to this year announce a slowing of the Fed's massive asset-purchase programme.
Still, the path was made bumpier by weak hiring in August, and with delta still spreading and supply chains still snarled, the Fed's policy path to taper and beyond is hedged with uncertainty.
Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.