Wall Street Journal: expectations of inflation returning to normal levels for 1st time in 3 years

Economists believe that inflation around the globe will slow down faster than expected, bringing inflation back to normal levels for the first time in three years, according to the Wall Street Journal.

The newspaper said in an article that the "core inflation, which excludes food and energy, in the group of economies that experienced the post-Covid inflation surge the US, Europe and several emerging markets ran at a 2.2% annualized pace over the three months ended November."

The average inflation among that group by the end of 2024, should be at or near the inflation targets of most major central banks, the newspaper expected.

In this context, senior adviser at Oxford Economics Michael Saunders expects inflation to reach 1.3% in the fourth quarter of next year in the euro area, and 2.7% in the U.K., while the newspaper noted that the US inflation will fall to 2.2% as measured by the Federal Reserves preferred personal-consumption-expenditures price index.

"The common factors pulling inflation down are food, energy, global goods prices and monetary policy," said Saunders. "But the differences, and why inflation will be quicker to return to target in the eurozone, is the U.S. and U.K. also have greater pressures from labor market tightness, which are fading only gradually."

The labor market is tight when the number of jobs is greater than the number of applicants for them, which leads to negotiating higher salaries, and thus continuing labor cost pressures for companies, which negatively affects inflation rates.

The newspaper explained the factors that led to global inflation, saying that in 2021, goods prices soared because of disrupted global production and shipping in addition to strong demand due to fiscal and monetary stimulus, adding that the Russian war in Ukraine in 2022 led to an increase in commodity prices, causing inflation to hit multidecade peaks.

"Inflation in the eurozone, which suffered from a cutoff of Russian gas, peaked at 10.6% in October 2022," the newspaper added.

Housing costs have also influenced services inflation. In the US, consumer prices rose 3.1% in November from a year earlier, but just 1.4% excluding shelter. The impact has been far smaller in Europe where owner-occupied housing is omitted from key inflation measures.

Unclogged supply chains drove down inflation toward the end of 2022 and throughout this year, and that will likely continue into next year, the newspaper noted.

Head of economic research at Renaissance Macro Research Neil Dutta said that energy and commodity markets adjusted to the Ukraine disruption as well, helping bring down energy prices and stabilize food costs, adding that these forces should continue to weigh on inflation in 2024.

The Wall Street Journal quoted chief global strategist at BCA Research Peter Berezin who said that the timing and impact will differ by country, and it is arguably already happened in the US, adding that wage pressures have abated due largely to an influx of workers into the labor force. (QNA)