How inflation is expected to behave in 2023
With regard to inflation, although we are starting to glimpse the first signs of moderation, it remains very high and far from the targets set by central banks. Over the last year and a half, inflation has become a virtually global phenomenon, even though its determining factors differ between economies.
In Europe, inflation is mainly due to supply factors, first as a result of bottlenecks in global production chains, and subsequently due to the rising costs of raw materials, particularly energy, especially due to the war in Ukraine. In the United States, demand has had a much more important role as a result of a fiscal policy that was too lax for too long, the reduction in the active population and the increase in salaries, in the face of a job market in which the number of vacancies per unemployed person is at an all-time high.
Despite the current high levels of inflation, we are starting to get good news on several fronts. Firstly, the expectations for inflation, although high, have stabilized and there is no de-anchoring of expectations. Secondly, the most recent data was surprisingly low in both the US and the eurozone, for the first time in many months. Lastly, commodity prices have come off their highs and we are seeing signs of slowing production prices.
Inflation seems to have topped out in the United States. However, doubts remain as to whether the same can be said for the eurozone. In any case, the favorable trend in energy prices explains this moderation in general inflation, but the decrease in the underlying inflation is expected to be slower.
For 2023, we expect this moderation in inflation to take hold, more so in the United States, with an average growth of 4.1% in the CPI, compared to an average annual inflation in Europe that will be close to 6%. The disappearance of base effects as the year progresses will play a key role, but so will the slowdown in activity and the moderation in demand. Given these forecasts, it could take a while for rates to converge on 2%. We don't expect inflation to reach the targets set by central banks until 2024. And any leeway in this central forecast will be on the high side. To keep risks from materializing, it will be crucial that no second-round effects occur, hence the importance of not letting wages or margins pick up speed, and for inflationary expectations to abate.
