Will global inflation subside? – Canadian Dimension

Photo by Christopher Hollis/Wikimedia Commons

Is the global inflationary spiral peaking? And if it is and inflation is set to fall over the next year, then has the inflation scare been just a momentary blip and now things will start to turn back to the previously low pace of inflation in the prices of goods and services?

That seems to the view of investors in financial assets in the US, where the stock market has rallied by as much as 20 percent from lows in mid-June; and both government and corporate bond yields have steadied. Markets seem to believe in what is called the Fed pivot, where the US Federal Reserve, having hiked its policy rate aggressively since April, will now start to end its hikes going into 2023 as inflation subsides.

Certainly, there is some evidence of peaking inflation in the US where the consumer price inflation (CPI) rate slowed more than expected in July to 8.5 percent year over year from a 40-year high of 9.1 percent in June. But looking beneath the headline rate, it is less convincing that US inflation is heading downwards, at least at any significant pace. The slowing in July was mainly due to falling gasoline prices. Food inflation (10.9 percent) and electricity price inflation (15.2 percent) continued to accelerate. And stripping out food and energy, the so-called core inflation rate stayed steady at 5.9 percent.

And outside the US, there is still little sign of peaking. The Eurozone inflation rate rose in July to 8.9 percent year-over-year, w....

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