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 their 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 is set to peak in 2022. Under the baseline scenario, global inflation is forecast to reach 8.9% in 2022 and then fall to 6.2% in 2023. Slower economic growth and consequently falling B2B demand for manufactured goods, stabilisation of commodity prices and improvements in global supply chains are helping to cap inflation growth. However, inflation remains at a high level and will continue to erode consumer purchasing power. Additional energy price shocks or geopolitical tensions could further add to inflationary pressures in 2023.
Energy supply remains among the key risks that could accelerate inflation growth in 2023. A colder than anticipated winter in Europe and insufficient natural gas supplies could spark energy price rises and add to the inflation surge in the Eurozone. The potential need to refill strategic reserves of crude oil in the US may also spark faster price growth for oil in 2023. Tight labour markets are also forecast to inflate operating costs for companies in 2023 and contribute to the higher inflation rate. Recovery in the sectors that were hurt by the COVID-19 pandemic and structural problems in labour markets are adding to the worker shortage.
Changes in monetary policy and a rise in interest rates in many key economies are expected to reduce inflationary pressures through lower demand; however, this would further limit consumer purchasing power. Higher debt costs would leave consumers with less financial resources to spend on other categories and limit borrowing for consumption. Fiscal measures implemented by the governments that helped to cap some of the inflationary effects for consumers are also expected to come under scrutiny in 2023, as countries will face higher borrowing costs. This could further inflate housing costs for consumers and limit purchasing power.
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