The global recovery appears to be strengthening, but we do not expect a generalised pick-up in inflation. In the US, core inflation may rise to 2% or more over the next two years as the economy gradually returns to full employment. However, inflation will probably be lower in the UK, where there is more surplus capacity, while in the euro-zone deflation remains the greater risk. Meanwhile, underlying inflation in Japan may already have peaked, well below the central bank’s 2% target.
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