Inflation continues to be at the center of client debates. The conversation has shifted from whether it has peaked to where it will settle. We have conviction on key subcomponent drivers of inflation and lean into our forecasts for the elements where we still await data to confirm our view.
Since we published our Year-Ahead outlook, I have met clients in Asia, Europe and North America – every single conversation comes to inflation. Core PCE inflation in the US peaked at almost 6% and CPI was notably higher. And yet here we are forecasting US core PCE inflation to be about 2.9% at the end of 2023.
In the euro area, inflation looks to have peaked at 10.6% in October. There, we expect core to fall to 3.9% at the end of next year. And so the debate begins. Will inflation really fall that much? Or will it get stuck at a higher level, maybe structurally higher? After a handful of downward surprises in recent inflation prints around the world, the pushback eased a bit, but only a bit. It is probably worth talking about how we came to our forecast, where our conviction level is, and where we could be wrong in light of the inflation debate.
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