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Global Inflation Tracker Q1 2023: Inflationary Pressures Abate but Emerging Markets Remain Under Pressure

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Global inflationary pressures are forecast to continue to ease in Q1 2023. Under the baseline scenario, global inflation is forecast to reach 6.5% in 2023 and then fall to 4.5% in 2024. Slower global economic growth and consequently weaker demand in large part help to cap the inflation growth. However, inflationary pressures in the emerging economies are expected to persist in 2023 as the still high exchange rate of the US dollar, lower foreign exchange reserves and delayed pass-through of the higher energy and commodity prices add to the price pressures.

Delayed pass-through of higher commodity prices and exchange rate fluctuations add to inflationary pressures in emerging markets

Source: Euromonitor International

Potential energy price hikes, ongoing deglobalisation, structural labour market problems and faster-than-anticipated economic recovery in China remain among the key risks and could accelerate price growth in 2023. In addition, consumer purchasing power in 2023 is forecast to be further eroded by stubbornly high prices of essential goods and rising interest rates.Global Inflation Tracker Q1 2023 Chart 1.svgFaster economic growth in China could accelerate commodity price growth in 2023

China’s economy slowed down as the country handled a disruptive reopening of the economy after the U-turn on its zero-COVID policy that it announced in December 2022. However, the reopening of the economy is expected to release pent-up demand and thus accelerate economic growth in the second half of 2023, providing new momentum to the global economic expansion.

Faster economic growth in China could increase inflationary pressures through higher commodity prices, as China is among the largest consumer of metals and energy

Source: Euromonitor International

Faster growth in China could, in turn, spark commodity price increases in the second half of 2023, with the biggest effects expected on the metals, energy and agricultural commodities. For example, China’s construction sector accounted for 12% of global spending on metal products while China’s electronic components industry consumed 9% of the global hi-tech goods in 2021.

In addition, faster growth in China would benefit exporters in the Asia Pacific region and lift consumption of commodities in major exporters to the country such as Malaysia, Indonesia or Thailand. Higher demand in the Asia Pacific region would be an additional catalyst for faster commodity price growth in 2023.Global Inflation Tracker Q1 2023 Chart 2.svg

Higher prices to erode consumer income gains and hurt consumption

Despite the strong labour markets that sustain wage growth, real disposable consumer income is forecast to stagnate as high inflation erodes income gains and hurts spending power. The global disposable income per capita is forecast to grow only by 0.1% in real terms in 2023, and by 1.5% in 2024.

High savings accumulated during the COVID-19 pandemic helped temporarily to cushion inflationary effects and support spending growth. However, this effect continues to wane as consumers face rising costs of essential goods. In addition, higher interest increases housing costs and limits consumer willingness to finance purchases of big-ticket items through debt.

Low-income consumers are most vulnerable to the inflationary effects as prices of essential goods continue to rise

Source: Euromonitor International

The cost-of-living crisis largely affects the low-income consumers in the emerging markets. Euromonitor International’s cost of living index, which measures living costs among different consumer income groups in a country, indicates that low-income consumers (Decile 1) in emerging markets experienced faster living costs growth over the period 2018-2023 as they spend a higher proportion of their income on essential goods and are thus more impacted by food price or housing cost increases.Global Inflation Tracker Q1 2023 Chart 3.svg

Global Inflation Tracker Q1 2023 Chart 4.svgInflation stabilises in 2023 but labour market issues and energy prices increase pressure

Inflation in the largest developed and emerging economies is showing signs of peaking as slower economic growth and consequently moderating demand help to cap price growth. Inflation forecasts for the key economies remain virtually unchanged from Q4 2022. However, persistent problems in the labour market continue to drive up prices of services and threaten price stability. Potential energy price shocks in the Eurozone are also among the key risks for inflation in 2023.


  • Inflation in the US is predicted to reach 4.0% in 2023 and 2.5% in 2024. Lower prices of energy and manufactured goods, as well as the effect of the higher interest rates help to cap the inflation. However, price pressures in the US will remain elevated in 2023 due to persistently high core inflation, which excludes food and energy price effects. Labour market problems and consequent labour supply and demand imbalances threaten price stability in the US.
  • Inflation in China is forecast to increase slightly to 2.5% in 2023 and 2.3% in 2024. The reopening of the economy and relaxation of the pent-up demand is expected to drive up inflation slightly; however, inflation in China remains low in comparison to other large economies. Faster economic growth in China could also lead to higher demand for commodities and add to the price pressures.
  • Inflation in the UK is predicted to reach 7.3% in 2023 and moderate to 3.2% in 2024. The contractionary effect of financial tightening on economic activities and private consumption, softer commodity prices and a higher comparison base are forecast to eliminate some of the inflationary pressures. However, potential energy and food price shocks as well as labour market problems continue to pose a threat to price stability in the UK.
  • Inflation in India is forecast to reach 5.2% in 2023 and stand at 5.0% in 2024. Lower food prices and tighter monetary policy in large part help to stabilise prices. Higher borrowing costs, weaker pent-up demand and softer commodity prices are expected to mitigate consumer price growth in 2023.
  • Inflation risks in the Eurozone have eased slightly although high energy prices continue to add to the inflationary pressures. The largest Eurozone economies with high dependence on energy imports, ie Germany, Italy and Spain, are forecast to see inflation rates of 6.7%, 7.2% and 4.5%, respectively, in 2023. Cascading effects of the higher energy prices to other sectors and potential removal of energy subsidies to households are among the highest inflationary risks in the Eurozone. Elimination of Russia from Europe’s gas market and growing demand for gas in China are also the potential risk factors to consider that could accelerate inflationary pressures in 2023.

Global Inflation Tracker Q1 2023 Chart 6.svg

Further insights into key inflation trends are available in our Global Inflation Tracker: Q1 2023 briefing.

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