Global inflation has likely peaked, leading data indicators show

Leading data indicators suggest that this year’s runaway global inflation has peaked and the pace of global price growth is expected to slow in the coming months.

Ex-factory prices, shipping rates, commodity prices and inflation expectations have all started to decline from their recent record highs. These data series are widely followed by economists and policymakers as they provide an early indication of the trends that will shape the calculation of headline inflation.

Economists say the figures suggest pricing pressures in global supply chains are easing, making headline inflation likely to decline from the historically high rates that have hit household finances and the economy. business activity in recent months.

That would be good news for major central banks, which have been raising interest rates quickly in a coordinated effort to rein in inflation, risking pushing major economies into recession.

“Inflation is probably at its peak,” said Mark Zandi, chief economist at Moody’s Analytics. The easing of price pressures and supply bottlenecks “portend the coming moderation in consumer prices,” he said.

Global inflation hit a record 12.1% in October according to Moody’s estimates; this will be the “high point” in consumer prices, Zandi said.

Inflation has already peaked in emerging markets, according to Capital Economics, with consumer prices falling in Brazil, Thailand and Chile, while recent data shows some easing price pressures in emerging markets. developed economies.

In Germany, ex-factory prices fell 4.2% in October from the previous month – the biggest monthly drop since 1948. In the United States and the United Kingdom, annual retail price inflation production has been slowing down since the summer.

Almost all of the G20 major economies that released their producer price indices in October reported a slower annual growth rate than the previous month, including Spain, Mexico, Portugal and Poland.

Jennifer McKeown, chief global economist at Capital Economics, expects global headline inflation to start falling next year due to falling prices for most commodities as demand weakens. High energy prices this year would stabilize in 2023, she said.

“Our estimate is that the combined food and energy effects will reduce headline consumer price inflation in advanced economies by about 3 percentage points on average over the next six months,” she said.

However, some economists have warned that continued high energy costs could slow the decline. Susannah Streeter, senior investment and market analyst at Hargreaves Lansdown, said “oil [is] should remain very sensitive to supply constraints, and the impending EU ban on Russian crude” would continue to fuel headline inflation in the UK and the eurozone.

Energy and other commodity prices could jump again if China’s economy recovers strongly or if Russia makes further export cuts in retaliation for Western caps on its oil and gas prices.

Commodity prices and other indicators that fuel the headline headline inflation figure are down.

The FAO Food Price Index slowed to an annual rise of 1.9% in October, down from a peak of 40% in May 2021. European benchmark gas price TTF is below 130 € per MWh, down from the peak of €311 in August and most commodity prices are well below their highs.

Global shipping rates have largely returned to pre-pandemic levels after rising more than fivefold during the shutdowns.

In the United States, manufacturing and service costs rose at the slowest pace since December 2020 in November, while selling price growth fell to its slowest pace in more than two years, according to the monthly survey of S&P Global purchasing managers. In the eurozone, factory sales inflation hit a 20-month low, according to the survey.

Investors’ expectations of where inflation will look five years from now have stopped rising, reflecting the recent aggressive tightening of monetary policy by many central banks.

US inflation fell more than expected in October and most economists expect the pace of price growth to peak this quarter in the UK, euro zone and Australia. Economists polled by Reuters expect eurozone inflation to hit 10.4% in November when data is released on Wednesday, down from 10.6% the previous month.

However, although likely to fall from its peak, global inflation is expected to remain above central banks’ long-term targets, economists said.

“Don’t expect inflation to come down to 2% [the target rate in most advanced economies] very quickly,” said Katharine Neiss, chief economist for Europe at PGIM Fixed Income.

Core inflation, which excludes energy and food, is expected to peak later for many countries as the impact of high energy prices on the wider supply chain will be ‘stretched’ , she warned.

Nathan Sheets, global head of international economics at Citi, said while many indicators point to “a sharp drop in inflation for many types of goods”, high inflation “is likely for some time to come.” [and] much of the coming year at least”.