Inflationary Pressures Continue to Ease

Summary

Inflation rates have continued to trend downwards in many of the world’s leading economies, raising hopes that the scourge of inflation will be tamed in the near-future. Nevertheless, inflation rates remain well above target levels in nearly every major economy in the world and will remain so in the months ahead.

After suffering from very high rates of inflation in 2022 and early 2023, inflation rates in the United States have fallen faster than expected in recent months. In June 2023, the US’ inflation rate fell to 3.0% on a year-on-year basis, a larger decline than had been expected. Inflation rates have also trended downwards in Latin America and Canada.

Inflationary pressures have proven more resilient in Europe, with inflation rates in Central Europe, the United Kingdom, Germany and Italy remaining dangerously high. This suggests that more interest rate hikes will be forthcoming in that region, making it more difficult for Europe to pull out of its current economic slump.

Asia’s leading economies are facing a lesser threat from inflationary pressures at the moment, despite a recent increase in inflation in India. Of interest, China is not facing the threat of high inflation, but rather of deflation. China’s official inflation rate fell to just 0.0% year-on-year last month and could dip into negative territory in the months ahead.

Looking Ahead

With the global economy forecast to grow by just around 2% in 2023, the fact that inflation rates are falling in most major economies will be welcome news. Nevertheless, central banks will remain committed to fighting inflation, so more rate hikes are likely.

The threat of long-term inflationary pressures always seemed unlikely, despite the soaring inflation rates in the wake of the Covid-19 pandemic and Russia’s invasion of Ukraine. Instead, deflationary pressures could emerge as a threat to many economies.