Headline Inflation Could Keep Accelerating, Wilding Says

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Tiffany Wilding 9.0

Headline Inflation Could Keep Accelerating, Wilding Says

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Retail gasoline prices are already up 20% versus when the episode in Ukraine started. Energy price shock is already impacting prices, suggesting upward pressure on oil prices in the near term.

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Central banks will worry about inflation expectations adjusting higher and prices filtering into wage negotiations, suggesting potential for tighter monetary policy and higher yields, though risks are moderated by weaker labor market.

Is there reason to be concerned about inflation and an inflationary spiral in the year ahead?

speaker1
In the year ahead.

speaker2
speaker3

Central banks have to be careful about inflation expectations adjusting higher and prices filtering into wage negotiations, making inflation more persistent.

We're coming off a post-pandemic period of elevated inflation. The labor market is in a weaker position now compared to during the Russia-Ukraine shock, with fewer vacancies relative to unemployed workers, making second-round effects more moderate.
Is that reason to take down the outlook for growth, given what you just said?

speaker1
speaker3

Yes, the energy price shock will impact headline inflation, accelerating it by about a percentage point, which means real incomes will decelerate by a percentage point.

Retail gasoline prices are already up 20%. Consumers have less savings buffer now with savings rate dropping and labor income growth falling, putting the consumer in a weaker position. This will likely take some off from growth.

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