Growth of global inflation is over, here’s what’s next

Judging by the movement of global inflation, it seems that the state has reached its peak and that in the other developed economies it does not expect anything good. The baseline graph shows the relative exposure of each country to the First Principal Component (PC1), which represents over 50% of all possible variations in global inflation movements.

The most important thing this graph tells us is that slowing the global inflation factor will hit the United States, Britain, the Eurozone, Sweden and New Zealand hardest. Canada and Australia are characterized as moderately affected, while Japan and Norway remain aside.

What about global inflation?

If we use the ARIMA model to design inflation in the future, we will notice that global inflation expectations are rather negative. Here is the result of the forecasts:

ARIMA Inflation Projection

Here is the movement of global inflation to the present day:

Global Inflation historical chart

What will the decline in global inflation lead to?

As I mentioned in the lines above, the United States is the country most vulnerable to global inflation. If the projection that ARIMA shows us is a fact, it is very likely that the Fed will rethink the increase in interest rates. This will add extra weight to the USD. Although the United States is the most vulnerable I think that Europe will rob all the negatives, as the ECB has long fought with even low inflation. Regarding the UK and the GBP, I expect Bank Of England to keep its current interest rates for a long time after the twofold rise triggered by high inflation. Perhaps a decline in island inflation will be beneficial to the economy that has already “picked” the fruits of Brexit. CAD will continue to be driven by the oil price and AUD and NZD will focus more on the war than on world inflation.

Chart: Used with permission of Bloomberg Finance L.P.

 Trader Petar Milanov

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