Why high inflation isn’t here to stay

The big concern about inflation is no longer the level at which it will peak, but where it will settle in 2023 and after. In our view, concerns about a prolonged period of high inflation are overblown. We expect food and energy prices to remain high next year, but annual inflation rates for these commodities should fall sharply, which will help trigger weaker-than-consensus headline inflation.

What you will learn:

• For high inflation to persist, policymakers would need to fail to tighten policy sufficiently or have their policy remits adjusted.
• The risk of an ‘accidental’ de-anchoring of inflation will be influenced by the extent to which structural forces constrain or fan inflation.
• Banks and households are now in a stronger position than after the global financial crisis, which bodes well for demand.