Shortages to maintain upward pressure on inflation

Outside China, global inflation jumped from 5.0% to 5.5% in October, its highest level since 2008. And timely data point to a further rise in November. Base effects, fading ‘re-opening’ inflation, and falling commodity prices will drag on headline inflation next year. But persistent product – and, in many cases, labour – shortages will maintain upward pressure on underlying inflation. According to our proprietary indicators, shortages worsened in all G7 economies in October. And supply chains remain vulnerable to disruption related to renewed virus restrictions in the months ahead. Faced with the trade-off between downside risks to activity posed by the virus versus upside risks to inflation, we think that most central banks are likely to press ahead with existing plans to tighten monetary policy. Accordingly, the rebound in investors’ interest rate expectations for the next couple of years seems broadly justified. Note: Central Bank Drop-In – The Fed, ECB and BoE are just some of the key central bank decisions expected in this packed week of meetings. Neil Shearing and a special panel of our chief economists will sift through the outcomes on Thursday, 16th December at 11:00 ET/16:00 GMT and discuss the monetary policy outlook for 2022.