Key data indicators suggest that global inflation is likely to peak

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

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

According to economists, the figures show that price pressures in global supply chains are easing, suggesting that core inflation will ease from historically high readings that have hit household finances and business activity in recent months.

That would be welcome news for leading central banks, which have been raising interest rates rapidly in a coordinated effort to tame inflation and risk pushing major economies into recession.

“Inflation is probably peaking,” said Mark Zandi, chief economist at Moody’s Analytics. Easing price pressures and supply-side challenges “signal an upcoming moderation in consumer prices,” he said.

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

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Inflation has already peaked in emerging markets, with consumer prices falling in Brazil, Thailand and Chile, while recent data suggest some price pressures are easing in advanced economies, according to Capital Economics.

Factory door prices in Germany fell 4.2 percent in October from the previous month – the biggest monthly drop since 1948. Annual producer price inflation in the US and UK has been slowing since the summer.

Almost all of the G20 group of leading economies that released their October producer price indices reported slower annual growth than in the previous month, including Spain, Mexico, Portugal and Poland.

Jennifer McKeown, chief global economist at Capital Economics, expects global inflation to start falling next year amid lower prices for most commodities as demand weakens. According to him, this year’s high energy prices will decrease in 2023.

“We estimate that combined food and energy effects will reduce consumer price inflation in developed countries by an average of 3 percentage points over the first six months,” he said.

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However, some economists have warned that continued high energy costs could slow the decline. Susannah Streeter, senior investment and market analyst at Hargreaves Lansdown, said, “oil [is] “Sustainability to supply constraints and the looming EU ban on Russian crude oil” will continue to lift core inflation in the UK and the Eurozone.

If China’s economy makes a strong recovery, or if Russia cuts exports further in response to lower western oil and gas prices, prices for energy and other commodities could rise again.

Commodity prices and other indicators included in the overall inflation figure are falling.

FAO’s food price index fell to 1.9 percent annual growth in October, well below a peak of 40 percent in May 2021. in August and most commodity prices are well below their peaks.

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

U.S. manufacturing and service spending rose at the slowest pace since December 2020 in November, while sales price growth fell to its slowest pace in two years, according to S&P Global’s monthly survey of purchasing managers. Eurozone factory sales inflation hit a 20-month low, according to a survey.

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

Inflation in the United States eased more than expected in October, and most economists expect price increases to peak in the U.K., the Eurozone and Australia this quarter. Economists polled by Reuters expected eurozone inflation to come in at 10.4 percent in November when data was released on Wednesday, down from 10.6 percent in the previous month.

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However, economists say global inflation will remain above the central banks’ long-term targets, although it is likely to fall below the peak.

“Don’t expect inflation to drop to 2 percent [the target rate in most advanced economies] too soon,” said Katharine Neiss, chief European economist at PGIM Fixed Income.

Core inflation, which excludes energy and food, is expected to peak later for many countries as the impact of higher energy prices on the wider supply chain “will linger”, it warned.

Nathan Sheets, Citi’s global head of international economics, said that while many indicators pointed to “inflation falling sharply for many types of goods”, higher inflation “may be some time in the future”. [and] at least for most of next year.’

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