Finally, I concluded by mentioning that it would be a pleasant surprise if wage gains in many countries persisted, despite the improving inflation outlook, without contributing to a fresh, more sustained rise in prices.
Last month, I wrote about the central role of inflation trends in the outlook for the world economy in 2024 and beyond. Of course, there are many additional risks, which is why the forecasting community is hedging its projections with sensible caveats about various “known unknowns.” Chief among these are the ongoing conflicts in the Middle East and Ukraine, the uncertainty about China, and looming elections in Europe, the US, and elsewhere.
With respect to inflation, I offered a cautiously optimistic outlook based on recent reports showing that many underlying indicators appeared to be moving in a promising direction. Since then, however, the latest monthly inflation data (for December) in the eurozone, the UK, and the US have surprised on the upside. That has given pause to many policymakers, investors, and analysts after weeks of the markets pricing in large interest-rate cuts this year.
