Inflation Falling Faster Than Anticipated

New York, NY, November 16, 2023-"Inflation is falling faster than expected across advanced economies, marking a turning point in central banks’ two-year battle against surging prices,” reports the Wall Street Journal. 

“Declines in consumer price growth, to below 5% in the U.K. last month and around 3% in the U.S. and eurozone, are fueling expectations that central banks could take their feet off the brakes and pivot to cutting interest rates next year.

“That would provide welcome relief to a global economy that is struggling outside the U.S., increasing the prospects of a soft landing from a historic series of interest-rate increases without large increases in unemployment. Europe, in particular, is on the brink of recession. 

“Yields on government debt in Europe and the U.S. have slumped as investors start to price in earlier interest-rate cuts.

“For months this year, economists puzzled over why growth and inflation hadn’t slowed more in response to interest-rate hikes. Now, there is growing evidence that higher borrowing costs are biting hard with a delay.

“‘It’s definitely a turning point for inflation,’ said Stefan Gerlach, a former deputy governor of Ireland’s central bank. ‘Investors may be surprised at how rapidly central banks cut interest rates next year, maybe by one-and-a-half percentage point.’

“The sharp declines in inflation across continents underscore how common factors drove up prices in the first place, especially the Covid-19 pandemic and Russia’s war in Ukraine. These crimped global supply chains, reduced the number of people in the workforce and fueled energy price increases, especially in Europe. As those forces subside, price pressures naturally ease.

“Inflation was also given a boost by demand-side factors, such as trillions of dollars of government stimulus spending in the U.S., as well as pent-up demand and savings from consumers that accumulated during the pandemic. That, economists say, is why underlying inflation remains strong nearly four years after the start of the pandemic, and why rate increases were needed to bring it down.”