Headline inflation will rebound in many countries in the coming months as the effects of the slump in oil prices drop out of the annual comparison. But the era of very low inflation is likely to continue for a long time yet. Underlying price pressures remain weak and in some parts of the world, including Japan and the southern euro-zone economies, there is still a threat of deflation. We expect global growth to be fairly slow in the coming quarters and wage pressures to remain subdued even in countries which are approaching full employment. The notable exception is the US where, despite the recent weak payroll numbers, the labour market is likely to continue tightening and where average earnings growth has already picked up. The upshot is that in six of the G7 economies inflation will probably remain below 2% next year, but in the US it should be closer to 3%.
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