Global | 2024: inflation and the "wall" effect

Summary

Inflation peaked in 2022 before easing considerably in 2023 in most economies. For instance, the average inflation rate in the United States dropped from 8.0% in 2022 to around 4.1% in 2023, while in the eurozone it fell from 8.4% to nearly 5.6%.

Key points

• Key points:
• Looking ahead to 2024, demand looks set to be relatively soft (particularly in the eurozone, where the outlook for growth has worsened), which bodes well for further easing in price pressures, as long as there are no fresh supply shocks.
• It will probably be harder to lower inflation from current levels (headline inflation of 3.1% in the United States and 2.4% in the eurozone and core inflation of 4.0% and 3.6%, respectively) and keep it in line with target levels (2.0% in both the United States and the eurozone) than it was to achieve the reduction seen until now.
• The first obstacle in the drive to curb inflation to 2.0% in 2024 is the trend in prices of commodities and several industrial inputs, which should be far less favorable than in 2023.
• Robust labor markets pose a second hurdle to a sustained drop in inflation. Although monetary policy tightening should help labor markets to slacken (so far only slightly), they could well remain relatively tight.
• A third barrier to an effective reduction in inflation will be fiscal policy, which in all likelihood will still be expansionary in 2024, but less so than it has been in the past few years.

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