In recent months Central Banks have been able to say inflation was falling back towards their targets. But, this had little to do with their rate hiking cycle, and more to the adjustment in supply-side prices, especially energy. The so-called base effects where big lifts in inflation months ago dropped out helped the narrative. But the inflation battle is far from over.
This is because ahead the base effects will reverse. And then we must consider the recent spike in energy prices, plus higher wages flowing through to the services sector of the economy. So overall, I think it is likely that inflationary pressures will re-accelerate in the months ahead. In the US as oil and gasoline continue their upward trend, CPI could potentially rise back above 5.1%-5.5% by year-end. Therefore, inflation levels could remain elevated for a more extended duration than is presently anticipated by financial markets.
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