Global pressures: Commodity prices have given a sharp lift to inflation, but the effect is fading due to base effects and lower momentum in oil and metals prices. However, bottlenecks remain widespread, delivery times are long and freight rates still very high.

Inflation expectations: Inflation expectations in markets and among consumers remain anchored in 2021 after rising from low levels in 2020.

US: Core inflation increased to the highest level in 30 years hitting 4.5% in June. Apart from the impact of commodity prices, it is mainly driven by effects related to the pandemic and the reopening, which has pushed up prices on used cars, airfares, lodging away from home, and restaurants. We expect these effects to be transitory. However, wage pressures are rising from a shortage of labour. We expect US core inflation to come down in 2022 but remain above 2%, see also Research US – Higher inflation but not spinning out of control due to still well-behaved expectations, 14 June 2021.

Euro: While headline inflation has risen to 1.9% y/y, core inflation remains low at 0.9% y/y. There is some pipeline pressure on core goods prices from the rise in commodity prices but wage inflation expectations should remain moderate and core inflation stay muted in 2022, see also Research Euro Area – Mind the inflation gap, 8 June 2021.

China: Chinese PPI inflation has peaked and PMI outprices have come down. CPI inflation remains far below the 3% target at 1.9% y/y with few signs it will run away. Chinese credit tightening points to downward pressure on commodity prices.

Download The Full Global Inflation Watch

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