Global inflation has peaked, slow return to target foreseen

According to projections by Bloomberg Economics, global inflation is expected to decline to 9.5% in the fourth quarter of 2022 and to 5.3% by the end of 2023, from its third-quarter peak of 9.8% year-on-year. However, the crisis has not ended yet.

In the United States, rising wage growth ensures that the core Consumer Price Index (CPI) will continue to be well above the target range of the Federal Reserve. High energy prices in Europe are causing a cost-of-living crisis that is pushing many economies into recession.

China is an exception to the global inflation crisis, as consumer price increases have been relatively low up until now, but the rapid reopening following the end of zero-Covid restrictions has increased the danger going forward.

United States

The unexpectedly lower November CPI data, with the core gauge slowing to 0.2% growth month over month, reinforces the claim that disinflation is developing in the US. The Federal Reserve’s fight against inflation has been helped by loosening supply restrictions, discounts to clear surplus inventories, a slowdown in interest-rate-sensitive industries, and lower energy prices.

Early indications indicate that December’s price increases are continuing at a similarly slow pace. Some Fed policymakers may decide that there is sufficient “compelling” evidence by the time of the next Federal Open Market Committee meeting in late January to begin discussing a slowdown in rate rises.

Euro Zone

The annual inflation rate for the euro zone decreased to 10.1% in November from 10.6% in October. The rate was 4.9% a year ago. The rate for the European Union was 11.1% in November, down from 11.5% in October. The rate was 5.2% a year ago. The slower pace of inflation will be pleasant news for the European Central Bank but any relief will be offset by the fact that underlying pressures are still far too high: core inflation remained steady at a record high of 5%.

According to Bloomberg, headline inflation has peaked and will begin to decline sharply at the beginning of 2023 when significant increases in energy prices from early 2022 are excluded from the annual comparison.

However, core inflation is decreasing because earlier increases in manufacturers©costs have gradually trickled down to product prices, while pay increases are pushing up inflation for services. Bloomberg expects that the ECB will continue to raise interest rates through the first quarter of 2023.

United Kingdom

With UK inflation falling to 10.7% in November from 11.1% in October, it is likely that the peak has been reached.

Over the winter, the annual CPI is expected to be high but will drop below 10% in March. This implies that the Bank of England will raise interest rates again at the start of 2023.

As a result of rising energy and core goods prices, Bloomberg anticipates a noticeable drop in UK inflation in the spring. As the labour market takes some time to loosen up, inflation in the services sector, which is currently running at 6.3%, is likely to be more persistent. In general, Bloomberg expects that the annualised CPI gain will end 2003 at 4%, with a decline below 2% not expected until 2024.

Thailand

While core inflation in Thailand has not yet peaked, the headline inflation rate is declining. Due to persistent demand-pull pressures, both indicators are currently above the Bank of Thailand’s 1-3% target range for annual headline inflation and are expected to stay above that range far beyond 2023. This will require further tightening by the BoT to offset the sustained upside risks to price expectations.

Thailand’s headline consumer price index (CPI) rose by a less-than-expected 5.55% in November from a year earlier, the slowest pace in seven months, helped by lower food prices.

In 2023, the central bank foresees an economic recovery as the number of tourists is anticipated to more than double from this year. Bloomberg economists forecast that the BoT will continue to gradually tighten monetary policy in January by raising the benchmark rate by another 25 basis points.