Pity the UK. Sure, inflation is slowing there as well, but from higher level and far more slowly than in most other countries.
Here’s a Goldman Sachs chart showing just how much global price pressures have abated this year (and how its economists expect them to continue to ease):
And here is 2023 broken down by regions. As you can see, even emerging markets excluding China — which is flirting with deflation — now have a much lower core inflation rate than the UK (at 6.9 per cent in June).
The decline in core inflation rates has mainly been driven by falling goods prices, as well as lower service inflation (at least outside Europe).
These charts are from a new report by Goldman’s economists Joseph Briggs and Giovanni Pierdomenico on what they call the “anatomy of a global core inflation slowdown”. Here are their main points:
— Global core inflation has slowed sharply. In DM economies, core inflation — defined as consumer prices excluding food, energy, alcohol, and tobacco — has fallen from a peak pace of 6% (3mma) to 4% today, while core inflation in EMs has retraced more than half of its overshoot. Details of the slowdown are even more positive, as trimmed core inflation has slowed to just over 2% in most major DMs, and core inflation is slowing at an increasingly rapid pace in the “early hiker” economies that are the furthest along in their hiking cycles.
— The key drivers of the core inflation slowdown are fairly common across countries. Slower core goods ex vehicles inflation accounts for over 1pp of the broader slowdown in almost all economies, while vehicles inflation has on average lowered global core inflation by over 1pp relative to its peak. Core services ex shelter inflation has also cooled meaningfully in most countries (outside of Europe) because of progress on labor market rebalancing and wage growth.
— The disinflationary forces that we had expected to lead core inflation lower — especially supply chain improvements and slower wage growth — are now arriving with a vengeance, as inflation surprises around data releases have recently turned negative. Combined with our view that all of these forces have room to run, the shift in the pattern of surprises adds to our confidence that global core inflation will fall back below 3% in 2024.
Of course, the question is whether inflation continues to cool off from there and heads back below the 2 per cent targets of most central banks. If not, then the coming rate hiking pause might prove only prove a temporary respite rather than the cycle’s peak.