Global inflation looks set to drop sharply

We expect global inflation to return to pre-crisis levels faster than it took to reach its peak. While any number of shocks could derail this outcome, there’s a slew of data supporting our optimism.

What you will learn:

• From a purely mechanical perspective of inflation dynamics, which we try to capture with machine-learning algorithms designed to discern patterns within goods and services prices, it seems likely inflation will decrease rapidly this year. Inflation momentum (3m/3m growth rates) suggest a decidedly negative trend, too.
• Looking at the main inflationary culprits – energy and food prices – there’s evidence to suggest that pandemic-era pass-throughs were higher than has historically been the case. With global food and energy prices returning to historical levels, it seems likely that bigger margins of the past two years will result in a faster pullback in inflation now.
• Producer prices, in retreat in both advanced markets and emerging markets, point to a swift turnaround too, yet also highlight an important difference between AEs and EMs in regard to recent inflation.