Global manufacturing surged last December, rising 7.4% SAAR (+4.9%y-o-y) to close the year up 4.0%. The gap between actual and potential output widened by some 20 basis points to 1.5%, the largest cyclical deviation since mid-2008. As expected, PPI inflation weakened somewhat in December (+0.3%) held back by sluggish growth in raw material prices. Global producer prices rose 4.1% in 2017, fully recovering the losses from the two previous years. Given the delayed pass-through from producer to consumer prices, tight operating conditions should drive up CPI inflation in 2018 even if the cyclical momentum dissipates.