Inflation trends remain uneven
U.S. Inflationary Pressures Are Building
Current inflation continues to edge higher but remains well below the Federal Reserve’s (Fed’s) desired level. Nevertheless, we believe improving economic growth, rising commodity prices, soaring federal debt, a weaker U.S. dollar and onshoring trends among U.S. businesses eventually will drive inflation higher. Market-based inflation expectations recently surpassed historical averages, suggesting inflationary pressures are building.
Slow Growth Is Keeping Inflation Muted in Europe
Despite another round of coronavirus lockdowns, annualized inflation in Europe and the U.K. has stabilized near 1%. This represents a notable change for Europe, which wrestled with persistent deflation during the second half of 2020. However, we expect slow growth and the lingering effects of pandemic-related shutdowns to keep inflation well below central bank targets through the next several months.
Inflation Is Mixed in EM Countries
Inflation in emerging markets (EM) is quite dispersed despite the overall rising trend. Several countries (i.e., Malaysia, India, China, Colombia, South Africa) are seeing declining momentum in inflation since reaching pre-COVID levels and expect inflation to remain below central bank targets. Average inflation across all EM countries is still below historical levels and the peaks of recent years. Overall, there is still room for some local rates to do well despite the fact many countries have ended or are close to ending their easing cycles.