Inflation: Inflation rising in developed markets
U.S. Shelter Costs Pressure Inflation Rate
Supply chain shortages recently drove the inflation rate to multiyear highs. The Fed believes most price increases are transitory, and we generally agree. However, we believe services inflation, particularly rents, will continue to climb and keep the inflation rate elevated. Massive government debt, a weaker U.S. dollar and onshoring trends among U.S. businesses, along with the Fed’s average inflation targeting, will also likely keep inflation elevated.
Prices Edging Higher in Europe
Outside the U.S., inflation remains weaker but is also trending upward. Expanding vaccine availability and the corresponding return of economic activity is gradually forcing eurozone and U.K. inflation higher. Base effects from last year’s shutdowns along with temporary factors, including supply bottlenecks and rising raw materials prices, are also to blame. Similar to the Fed’s strategy, eurozone and U.K. central bankers remain content to let inflation rise for the time being.
Inflation Easing in Emerging Markets
Although consumer prices have risen in emerging markets, inflation momentum is subsiding in most countries. In general, emerging markets inflation remains below average and sharply lower than the peaks recorded in recent years. We expect inflation to remain below central bank targets in several countries, including China, Malaysia, India, Colombia and South Africa.