Harvest Global Markets :

Every fresh inflation figure seems to have taken onlookers by surprise for more than a year. However, in the previoustwo months, the unexpected result of the inflation figures was lower than anticipated. The most recent inflation rate dropped well below expectations in the U.S, the Eurozone, and the U.K. Price increase topped in June in the US, which led its peers into the recent 20-month inflationary period. Since then, American consumers have seen an explicit decline in energy costs. Since the summer, there has been a substantial decline in the price of commodities including food, gas, and oil internationally. If these trends persist, inflation will once again be defined by the name “transitory.”

If these trends persist, inflation will once again be defined by the name “transitory.” The globe has seen a number of one-off relative price shocks, therefore price mechanisms will have acted as one would have predicted. These included a significant shift in US consumer behavior toward purchasing goods rather than services, supply chain disruptions from Shenzhen to Suez, an increase in food and energy prices in late 2021 that was, in retrospect, tied to Vladimir Putin’s earlier slackening of gas flows to Europe, and, of course, Russia’s invasion of Ukraine and further weaponization of the energy and food trade.

Thus, the point at which the cumulative inflationary effects of singular shocks wear off or reverse is rapidly approaching. The moment of truth will come then. Only then, and on the assumption that no fresh shocks emerge, will we learn whether self-sustaining pricing pressures have solidified, which is the rationale of central banks’ ongoing adjustment.

Inflation expectations for the headline rate in one year are now 3.1% from the Federal Reserve and 3.6% from the European Central Bank. It’s possible that it falls even more quickly than predicted.

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