This report examines inflation levels and drivers globally and in key countries. Global inflation is reaching a peak, although geopolitical risks and uncertainty in the energy market remain key risks. The impact varies between countries, with Eurozone markets likely to be the most affected, given its reliance on energy imports. Increasing prices will undermine consumer purchasing power, while persistent inflationary pressures will encourage central banks to tighten monetary policy.
This report comes in PPT.
Consumer price and manufacturer price data suggest that inflation will reach a peak in Q3 2022. Under the baseline scenario, global inflation is forecast to reach 8.7% in 2022 and then fall to 5.3% in 2023. Stabilisation of commodities prices and lower fuel costs are the main factors that will help to cap the inflation surge. However, inflation remains at a high level and will continue to erode consumer purchasing power. Additional supply chain disruptions and potential energy price shocks also remain among the key risks, and could accelerate price growth in Q4 2022.
Slower global economic growth and weaker demand in China have helped to ease the pressure on energy prices. However, potential punitive supply cuts from Russia and underinvestment in the oil and gas extraction sector could escalate the situation and accelerate price growth. Countries with greater dependency on energy imports, such as Germany, Spain and Italy, will feel higher inflationary effects in 2022 in the event that energy price growth accelerates. This, in turn, is expected to increase inflationary pressures and undermine economic growth in the Eurozone.
Changes in monetary policy and a rise in interest rates in many key economies are expected to reduce inflationary pressures through lower demand. However, in the short term, this would further limit consumer purchasing power, as higher interest rates are inflating mortgage payments. The increase in mortgage payments will cause additional headwinds for many consumers, who are already facing higher costs of essential goods, and would reduce consumer spending on big-ticket items, as well as non-essential services.
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