Bruce Kasman is joined by Raphael Brun-Aguerre, Joe Lupton, and Nora Szentivanyi to discuss the near-term inflation outlook. Global CPI inflation accelerated sharply last quarter to an estimated 5.9%ar, approaching its fastest pace over the past quarter century. This acceleration was accompanied by a notable broadening of price pressures. While a broadening of price pressures often signals a sustained upward shift in inflation but we believe it is appropriate to fade last quarter’s acceleration and look for a significant drop to a 3.5%ar in 1Q22. 

 

It is easy to forecast a deceleration in energy inflation as a natural gas price shock is starting to fade. Forecasting the trajectory of core inflation is more complicated as goods and services prices face different COVID -related cross-currents. In all, we forecast core inflation to stabilize this quarter. But for the first time in a year, we assess risks at the start of the quarter as skewed towards a downside surprise. In contrast to last year’s COVID waves, it is unlikely that the Omicron wave derails the gradual relaxation of global supply constraints now underway. Its potential drag on service-sector demand thus poses the greatest near-term risk.  

This podcast was recorded on January 5, 2021.

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