Global inflation likely to have peaked, key data indicators suggest

Key data indicators suggest that rampant global inflation this year has peaked and that the pace of headline price growth is set to slow in the coming months.

Factory gate prices, shipping rates, commodity prices and inflation expectations have all started to decline from recent record levels. These data sets are widely watched by economists and policymakers as they provide an early indication of the trends that will shape headline inflation calculations.

According to economists, the figures suggest that price pressures on global supply chains are easing, making it likely that headline inflation will fall from the historically high rates that have hit household finances and business activity in recent months.

That would be good news for central bankers, who have raised interest rates rapidly in a coordinated effort to tame inflation, risking plunging major economies into recession in doing so.

Mark Zandi, chief economist at Moody’s Analytics, said: “Inflation is likely on the upside. The easing of price pressures and supply chain disruptions “portrays the coming moderation in consumer prices”.

Global inflation hit a record 12.1 percent in October according to Moody’s estimates; That will be the “high water mark” for consumer prices, Zandi said.

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Inflation has already peaked across emerging markets, according to Capital Economics, with consumer prices falling in Brazil, Thailand and Chile, while the latest data shows a weakening of some price pressures in developed economies.

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In Germany, factory gate prices fell 4.2 percent in October compared to the previous month – the biggest monthly fall since 1948. In the US and the UK, annual producer price inflation has slowed since the summer.

Almost all of the G20 group of leading economies that released their October producer price index reported a slower pace of annual growth than in 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 on the back of lower prices for most goods as demand weakens. He said that this year’s high energy prices would flatten out in 2023.

“Our estimate is that the effect of food and energy together will hit about 3 percentage points of core consumer price inflation in advanced economies on average over the next six months,” he said.

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

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Prices for energy and other commodities could jump again if the Chinese economy makes a strong recovery, or if Russia further cuts exports in retaliation for western price caps on its oil and gas.

Commodity prices and other indicators that feed into the overall headline inflation figure are falling.

The FAO food price index slowed to an annual increase of 1.9 percent in October, a way down from a peak of 40 percent in May 2021. TTF the European reference gas price is below €130 per MWh, down from a peak of € 311. in August and most commodity prices are well below their peak.

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

In the United States, manufacturing and services prices rose at the slowest pace since December 2020 in November, while sales price growth fell to its slowest rate in more than two years, according to the monthly S&P Global purchasing managers’ survey. In the euro zone, inflation in factory sales reached a 20-month low, the survey found.

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Investors’ expectations about where inflation will be five years from now have stopped increasing, reflecting the recent aggressive monetary policy of many central banks.

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

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However, while it is likely to fall from its peak, global inflation is set to remain above the long-term goals of central banks, economists said.

“Don’t expect inflation to drop to 2 percent [the target rate in most advanced economies] very quickly,” said Katharine Neiss, chief European economist for 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 “drawn out”, he warned.

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

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