Low price increase as a gift – Newspaper Kommersant No. 187 (7388) dated 10/10/2022

The global recession is now the main factor in a possible slowdown in world inflation, according to analysts polled by Focus Economics. The key risks of rising prices are associated with an increase in energy prices, however, further tightening of monetary policy and a fall in real wages will not allow inflation to grow further in a spiral, the International Monetary Fund (IMF) also believes.

Global inflation will peak in the third quarter and begin to decline towards the end of the year, international analysts surveyed by Focus Economics expect. 48% of respondents pointed to the risks of rising inflation, while 39% expect it to slow down (the remaining 13% assessed the risks as balanced). Experts considered the main risk of rising inflation to be a possible complete halt in Russian gas supplies to Europe (this risk was noted by 60% of respondents), 9% pointed to the possible consequences of extreme weather conditions (for example, a cold winter in Europe), the same number pointed to the risks of wage increases due to record low unemployment rates in developed countries.

According to 68% of respondents, a global recession could lead to a decrease in global inflation, 22% pointed to a possible reduction in price growth due to the achievement of a peaceful settlement of the conflict in Ukraine (this would lead to an increase in grain and gas supplies), and only 3% named as such a factor is the achievement of a nuclear deal with Iran, which would increase oil supplies. Note that the OPEC+ countries last week already announced a reduction in the production ceiling by 2 million bpd.

The current risks associated with the state of labor markets are unlikely to lead to an inflationary spiral effect, analysts at the International Monetary Fund say (this issue is discussed in the analytical part of the report on the state of the world economy). The fund analyzed 22 cases of rising inflation with a decrease in real wages in developed countries over the past 50 years – as a rule, such dynamics do not lead to further inflation growth, on the contrary, the indicator begins to decline in subsequent quarters, which has a positive effect on the growth of real wages. The IMF notes that inflationary shocks are now acting outside of labor markets, the fall in real disposable incomes of the population also helps to reduce pressure on prices. In addition, the IMF analysis takes into account that the world’s largest central banks are now tightening monetary policy rapidly.

At the same time, multidirectional dynamics can be observed in the US and Europe. In the first case, inflation will continue to slow down – its indicator for the United States began to decline back in July, when price growth fell from a record high of 9.1% to 8.5% (in August, annual price growth decreased to 8.3%, month-on-month growth amounted to 0.1%). In the second case, on the contrary, inflation may further accelerate against the backdrop of another increase in energy prices in the EU (in September, the figure was 10%, by August, the price growth accelerated to 1.2%). Experts also expect further tightening of monetary policy – primarily the US Federal Reserve. Recall that the latest dot chart of the members of the regulator’s open markets committee provides for an increase in the rate this year to a level of 4.25-4.5%, next year to 4.5-4.75%, following the results of the September meeting, the rate was increased to level of 3–3.25%.

Tatyana Edovina