Inflation Outlook — Take 2
The inflation outlook is the proverbial million-dollar question at the moment. In September last year we put together an inflation outlook piece (based on US CPI) that predicted inflation will peak and then fall rapidly in early 2023. So far, so good. But the big question now is – will it keep falling or level out somewhere above central bank targets? And if so, at what level will inflation baseline?This thematic looks at the underlying components of inflation and draws upon lessons of the past to see if we can garner any insights as to central banks’ abilities in getting structural inflation down.
Main Points:
1. Services CPI is a worry. Looking back to the 1970s – another epoch where there was an exogenous inflation shock – services CPI stayed belligerently high and indeed put a floor under Headline CPI falling below 5% in the US. Is history about to repeat itself and therefore our ‘terminal, terminal’ scenario is a foregone conclusion?…
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