Following a long period of tightening labour markets, wage pressures are mounting, and we think this will lead to a gradual pick-up in average earnings growth. Core inflation rate will probably rise quite sharply in the US next year but then drop back as the economy slows, while elsewhere we expect it to rise more slowly. We do not expect a dramatic increase in inflation because earnings growth remains fairly unresponsive to falling unemployment and oil prices are likely to fall next year, which would be a drag on headline inflation. Against a backdrop of slowly building price pressures, central banks in many economies are likely to stick to their plans for cautious policy normalisation.
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