Global Coronavirus Watch: Nearer-term inflation risks build
The latest US and China inflation numbers have been shrugged off by markets despite being a bit higher than expected. While we still think that talk of a shift to a new regime is premature, the risks to the near-term inflation outlook are tilted to the upside due to pandemic-related imbalances and bottlenecks.
The shipping industry is lurching from one setback to another, and disruption to supply chains and rising costs is becoming the norm. A quick return to prepandemic shipping costs seems a distant prospect, so it’s increasingly likely that higher shipping costs will be pushed up the supply chain.
Similarly, the effects of past surges in commodity prices are unlikely to have been fully passed through to goods and food prices particularly, while ongoing chip shortages could continue to push up prices.
Although we raised our 2021 CPI inflation forecasts this month, the risks to our slightly-above-consensus inflation forecasts remain skewed to the upside. Stronger core and food inflation may temper the expected fall back in annual energy inflation, but even if inflation pressures ease more slowly, we think it’s unlikely to de-anchor inflation expectations. Fundamentally, we still consider this episode to be a transitory shock.
Finland’s growth forecast cut amid weak confidence and soaring inflation
We have lowered our 2022 GDP growth forecast for Finland to 1.5% from 1.7% last month, as weakening confidence further dampens the outlook. We expect inflation to peak higher with a greater passthrough to core prices, squeezing real incomes and denting consumption. Russia has accounted for almost 10% of Finland's goods trade, among the highest in Europe.Find Out More
Why we see eurozone inflation slowing sharply next year
We have revised our 2022 eurozone inflation forecasts sharply higher, to 6.0%, since the start of the Ukraine war, as energy and food prices began to soar and new supply bottlenecks emerged. That said, we still see inflation decelerating sharply to 1.3% in 2023, putting us below consensus. While we recognise significant risks to our views, inflation should slow to below 2% in H2 2023.Find Out More