Global Coronavirus Watch: Time for a re-think on inflation?
We think that recent inflation surprises are not evidence of a regime shift in price-setting behaviour. But the path for inflation over the next few months is highly uncertain and depends on several difficult-to-predict factors, ensuring that every development will be intensely scrutinised.
Surging demand for goods along with major supply chain issues are likely to lead to further goods price rises even as spending patterns begin to shift back to pre-crisis norms. It will probably take several more months for freight bottlenecks and semiconductor shortages to be resolved.
But the extent to which, for instance, US durable goods prices have deviated from their longer-run trend does suggest that as we move into 2022 the goods sector may start to be disinflationary.
Another potentially major upward force globally is likely to be higher services inflation. For now, it seems that firms are returning prices to their pre-pandemic trend path, rather than pushing them on to a new higher trajectory. But services firms may view reopening as a timely opportunity to raise prices leading to a larger-than-normal clumping of price hikes.
BoK’s monetary policy to tighten even as hiking cycle ends
Even without rate hikes, central banks' monetary policies can effectively tighten if the nominal neutral rate falls below the policy rate. We expect this will be the case for the Bank of Korea this year, as the gap between the policy rate and the nominal neutral rate widens.Find Out More
China: Emerging green shoots in Spring, but not out of the woods
We now incorporate a faster recovery from the post-Covid exit wave and raise our 2023 full-year GDP growth forecast to 4.5% (from 4.2% previously).Find Out More