Stubbornly high inflation will persist in many economies

The IMF expects stubbornly high inflation will persist in many economies due to strong labor markets and potent consumer demand [1].

Another potential issue is that core inflation measures, which exclude changes in food and energy costs, are expected to slowly return to the long-standing 2% targets. By 2023, the IMF anticipates that about half of the world’s economies will not experience a decline in core inflation. For advanced economies, it upgraded its near-term estimates to 5.1% for 2023 and 3.1% for 2024, respectively [1].

The IMF anticipates that inflation will remain above target in 89% of economies with such thresholds next year. If central banks maintain high interest rates for longer than investors currently expect, Gourinchas warned of the potential for a market realization that borrowing cost expectations are misaligned, possibly leading to volatility [1].