The year 2022 marked the end of "lowflation," a side effect of globalization. Indeed, COVID-related disruptions of global supply chains, more decisive climate policy action as well as a full-fledged energy crisis and a food price shock in the wake of the Ukraine war led to a new regime of elevated inflation.
Not only did volatile energy and food prices drive up headline inflation, but wage increases also allowed less volatile price categories like travel, hospitality, and medical services to rise, lifting core inflation to multi-decade highs.
Although we believe inflation has peaked in most countries as a result of decisive monetary policy action, central banks are signaling that they need to hike rates further to reduce demand and create slack in labor markets.
Although we expect the pace of tightening to peak by the end of 2022, we do not forecast any developed market central banks to cut interest rates in 2023.