Brighter outlook for global economy as inflation eases

By FMB on 

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At times in the past two years, it seemed to some that inflation would never come down. Double-digit inflation became routine. Now, with price rises back near
normal levels, optimism is returning to financial markets.

Disinflation diaries

Inflation has fallen well below the multi-decade highs witnessed in many countries since 2022. In response, central banks around the world now look set to ease monetary policy in the coming months. Indeed, some central banks, including those in emerging markets, have already started cutting rates. In recent months, policymakers in Mexico, Brazil, the Czechia, Hungary and Colombia have started, or increased, easing efforts.

The ‘last mile’

As developed countries bring monetary policy back towards more normal levels, some analysts are talking about the ‘last mile’ for disinflation. Certainly, after a long period of high
inflation, falling inflation rates are a welcome relief for many. In the UK, inflation has eased significantly from the 41-year-high of 11.1% recorded in October 2022.

For all this optimism, however, there are some warnings that the final stretch will not be a stroll in the park.

Bumps in the road

In Australia, consumer price inflation rose to a five-month high in April, a figure that surprised analysts. The uptick was blamed on increases in petrol, health and holiday costs. Meanwhile, the International Monetary Fund (IMF) has released a Global Financial Stability Report warning that geopolitical tensions, strains in commercial real estate and debt vulnerabilities all remain acute risks for the global economy in the months and years ahead. The IMF pointed to recent evidence that disinflation may have stalled in some countries, suggesting that inflation may be persistent in some sectors.

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