Research Briefing | Aug 8, 2022

Global inflation pressures are easing but challenges remain

Inflation is sufficiently elevated globally that even a month without any increase in prices still leaves inflation in most economies above 5% by year-end 2022. Moreover, price pressures are so rife across goods and services that a rapid return to price stability is unlikely. Still, policy tightening is working: The US and UK are seeing core inflation fall, with further drops expected.

What you will learn:

  • Commodities, the chief culprit in the inflation spike, are on their way back to multi-year averages, with oil prices and commodities 21% and 10%, respectively, below their peak. That said, sizeable regional differences remain, which will have repercussions for inflation and policy going forward.
  • Natural gas prices are more than 10 times higher in Europe than in the US and will push the energy component of the CPI in European countries higher in the second part of the year. This will force the ECB, having gotten off to a late start, to tighten policy even further.
  • Nonetheless, inflation expectations seem no more unanchored in Europe than they do in the US. Germany, a traditional hawk, appears not to be anticipating higher inflation in the future – inflation-protected bonds indicate average inflation expectations at just above 2%.
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