This report examines inflation levels and drivers globally and in key countries. Global inflation is moderating, although divergence among the key economies increases. Higher volatility in the energy markets and disruption of agricultural commodities remain among the risks adding to inflationary pressures. Increasing prices also undermine consumer purchasing power, while persistent inflationary pressures encourage central banks to tighten monetary policy.
This report comes in PPT.
Under the baseline scenario, global inflation is forecast to reach 7.0% in 2023 and decline to 4.7% in 2024. Slower economic growth and tighter monetary policies, to a large extent, help to ease global inflationary pressures. Yet, divergent inflation trends in the largest economies prevail. Inflation in the Eurozone and developing economies is forecast to remain persistently higher than central banks’ targets in 2024, the result of tight labour markets and commodity price fluctuations. On the other hand, inflationary trends in the US start to cool while China faces a threat of deflation as the country’s economy continues to struggle.
Inflationary pressures from the services sector remain elevated as a result of low unemployment in the largest economies and sustained wage growth. In addition, demand for services remains strong, further fuelling price increases. Inflationary pressures in the services sector are forecast to abate in 2024 as tighter monetary policies and weaker economic growth are forecast to restrict discretionary spending. However, long-term challenges in the labour markets will prevail and continue to put pressure on the services sector.
Increased commodity supply risks could add to more price volatility in the commodity markets towards the end of the year and add to supply-side inflationary pressures. For example, the expiry of the Black Sea Grain initiative has heightened the supply risks of agricultural commodities. Prolonged supply disruptions could renew inflationary pressures in the food industry. Energy supply risks also remain elevated and could lead to higher prices in Q4 2023, with energy importers in Europe and Asia being particularly vulnerable.
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