Inflation: how high will it go?
Inflation has been on a relentless upward march in recent months in developed economies, on the back of supply chain tightness, the impact of the war in Ukraine on commodity markets, and recovering economic activity. The analysts that we poll have raised their forecasts in tandem: Consumer price inflation is now expected to average 7.1% in the UK and U.S. this year, and only slightly lower than that in the Euro area.
Inflation will only continue to rise in the near term. Higher food and fuel prices in the wake of the war are still filtering through to the end prices paid by consumers. Plus, the impact of Western sanctions on Russia’s energy output will intensify in the months ahead, while Russia’s ban on gas exports to some EU countries will likely further stoke energy prices. Moreover, China’s Covid-19 surge and lockdowns are causing logistical logjams which will filter through into further supply chain trouble in the short term. That said, the discrepancy among analysts is wide, reflecting the uncertain geopolitical outlook: In the U.S. for instance, 2022 inflation forecasts range from a minimum of 5.7% to a maximum of 12.5%.
Fiscal support measures—which have been rolled out in a host of European countries in recent weeks—should temper the upswing in prices to an extent. And monetary tightening will also play a role in eventually reining in price pressures. That said, aggressive rate hikes will bring their own risks: In the latest CNBC Fed Survey, a majority of financial experts now see a U.S. recession as a result of the Federal Reserve’s expected interest rate path. This leaves monetary authorities between a rock and a hard place—and everyday citizens with a highly uncertain economic panorama for the months ahead.
Insights from Our Analyst Network.
Insights from Our Analyst Network
On the outlook for U.S. inflation, the EIU said:
“We forecast that inflation will remain above 7% in the first half of the year and ease gradually in the second half as Fed tightening slowly takes effect and price rises decelerate, especially when compared with the second half of 2021, when annual inflation averaged 6%. However, for the full year, we forecast that inflation will average 7.2% in 2022 (revised from 6.6%). Despite rate rises and slowing demand (which will also take some heat out of the labour market, where widespread worker shortages have been pushing up wages, exacerbating the upward spiral in prices), we now expect inflation to average 2.8% in 2023.”
On the implications for asset markets, analysts at ING said:
“The times of solid risk sentiment in the face of tightening central banks are over. The end of the goldilocks market makes sense and asset classes have to chose between the inflationary or recessionary scenarios. The curve can price both for a time, by flattening, but we think bonds will eventually benefit from safe-haven demand across the board.”
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinion of FocusEconomics S.L.U. Views, forecasts or estimates are as of the date of the publication and are subject to change without notice. This report may provide addresses of, or contain hyperlinks to, other internet websites. FocusEconomics S.L.U. takes no responsibility for the contents of third party internet websites.
Author: Oliver Reynolds, Economist
Date: May 6, 2022
TagsLatin America Asia Eurozone Asian Financial Crisis Eastern Europe Resource Curse Turkey Oil Government Bond Italy Lagarde chile Vietnam election Economic Crisis Venezuela Housing Market Mexico Banking Sector centralbanks Japan Economic Outlook France Central America Cannabis Economic Debt Canadian Economy TPI Energy Commodities UK Greece Tunisia Sterlin Nigeria Cryptocurrency public debt Trade IMF economic growth GDP oil prices Emerging Markets Argentina Germany Nordic Economies Commodities Economists Costa Rica; GDP; Budget Agricultural Commodities Canada CIS Countries Exports Sub-Saharan Africa digitalcurrencies Base Metals Commodities interview USA TPS Asean Consensus Forecast scotiabank Russia G7 Copper European Union ECB Brazil Africa Iran Budget deficit Bitcoin MENA Australia Israel Fed Colombia Brexit China Healthcare Company News Infographic Precious Metals Commodities United Kingdom Unemployment rate Base Metals Exchange Rate Palladium Euro Area Ukraine Interest rate Investment Forex Inflation Draghi South Africa India TPP Gold precious metals Spain Economic Growth (GDP) Major Economies United States Portugal OPEC Political Risk
The UK has been buffered in recent days by a tumbling pound and spiking bond yields. In our latest insight piece, w… https://t.co/XhK7bhkxsB
14 hours ago
Global inflation will be at a multi-decade high this year, although forecasts vary wildly from country to country,… https://t.co/PjV4g9LvO4
20 hours ago
Elevated commodity prices, supply constraints and tight labor markets have spurred global inflation to its current… https://t.co/Bbhrm8gUpJ
3 days ago
Our analysts' forecasts for average 2022 Euro area inflation have risen uninterruptedly so far this year, and now s… https://t.co/0eTYsBY7V9
3 days ago
6 days ago