2% core inflation by mid-2025 across DMs

With goods inflation vanquished, the last leg of disinflation in advanced economies must come from falling services inflation. After plateauing at the start of the year, services inflation has fallen in recent months, and we think that this will continue in the year ahead. Labour markets are loosening, which should in turn weigh on pay growth. Corporate pricing power has continued to weaken as aggregate supply and demand have come into better balance. Low core goods inflation means that insurance inflation should continue to abate. And leading indicators point to a normalisation in shelter inflation too – a key component of inflation in North America. All in all, we expect core inflation to have reached 2% by the middle of next year in almost all DMs, allowing central banks to cut interest rates. In much of emerging Europe and Latin America, however, excessive growth in unit labour costs will keep inflation above central bank targets throughout 2025, meaning that monetary easing will slow, halt, or in Brazil’s case, reverse.

Note: We’ll be discussing the key takeaways from this analysis and highlighting implications for the bond market in a Drop-In on Thursday, 31st October. Register here for the 20-minute online briefing.