CONSENSUS FORECAST

July 2022

Special Report: Inflation

Contributors
ARNE POHLMAN JOAN ARGILAGÓS THOMAS FENGE
Chief Economist Head of Data Analysis Head of Data Solutions

OLIVER REYNOLDS HANNAH TAYLOR PAOLA TIRANZONI

Senior Economist Editor Junior Data Analyst
ALMANAS STANAPEDIS BENCE VÁRADI INÉS DRAAIJER
Senior Economist Senior Data Analyst Research Assistant
MARTA CASANOVAS MAR LOBATO KORKUT KELES
Economist Data Quality Coordinator Research Assistant
MATTHEW CUNNINGHAM YULIANNA VALENCIA PEDRO LOMO
Economist Data Analyst Research Assistant
JAN LAMMERSEN CRISTÓBAL BASCUÑÁN ADRIÁN VELA
Economist Junior Data Scientist Research Assistant
JACQUES LE CHEVALLIER ÒSCAR BUSQUETS OLGA COSCODAN
Economist Junior Data Scientist Partnerships Manager
JONUEL PEREZ CRISTINA ALONSO FATIMAH SAADI
Economist Junior Data Analyst Partnerships Manager
MAGDALENA PRESHLENOVA ALBERT NAVARRO
Economist Junior Data Analyst
FOCUSECONOMICS Special Report: Inflation July 2022

Special Report: Inflation

• Global inflation is set to surge this year to 7.6%, by far the highest level since we began collecting regional aggregate
forecasts in 1999. The war in Ukraine is boosting commodity prices and causing supply difficulties, with the latter compounded
by China’s Covid-19 restrictions. Moreover, the lifting of Covid-19 restrictions in most of the world is boosting services demand.

• Energy prices are expected to stay substantially above their pre-pandemic levels for the foreseeable future, as a result of
constrained global supply.

• Central banks are nowhere near the peaks of their tightening cycles. In the case of the U.S., our analysts expect roughly 150
basis points of additional tightening this year alone.

• Such rapid rate hikes raise the risk of recession. While still not a majority view, some analysts now forecast GDP contractions
for several developed economies in 2023.

Oliver Reynolds
Major Economies Economist

Inflation projections In 2023, global inflation is projected to ease to 4.6%. The

reduction should come on a more favorable base effect for
While global inflation is forecast to average 7.6% this year, food and fuel, following the price surges witnessed for both
the discrepancy between world regions is huge. At one end commodities this year. For instance, Brent Crude is forecast
of the spectrum, inflation in Eastern Europe will be spurred to average around USD 90 per barrel next year, compared to
by sanctions on Russia, economic collapse in Ukraine and a USD 105 this year. Moreover, shipping costs have already fallen
tumbling Turkish lira. At the other end, price pressures in Asia will to around USD 7,000 per container, from a high of over USD
be capped by muted demand in China amid ongoing Covid-19 10,000 reached late last year, as consumers shift spending from
restrictions. Inflation in Asia will also be held back by idiosyncratic goods to services. Shipping costs should ease further in 2023
factors, such as the reliance on rice as a dietary staple—prices as new container capacity comes onstream. Similarly, increased
of which have been less affected in the wake of the war in semiconductor production will ease the chip shortage and bring
Ukraine—a recovery in China’s pig herds leading to lower pork down car prices, while tighter monetary policy will dampen
prices, and a more gradual loosening of Covid-19 restrictions demand.
relative to other world regions limiting services inflation.
Brent Crude oil prices, USD per barrel
Regional inflation forecasts, 2022 120

25
104.6
22.7

89.9
20 90

70.9
15.0
15
13.8 13.8
60

10 43.4

7.6
7.1
30
5
3.4

0 0
Asia ex-Japan Major World Sub-Saharan Latin America Middle East & Eastern 2020 2021 2022 2023
Advanced Africa North Africa Europe
Economies
Note: Brent Crude oil prices, USD per barrel. Source: FocusEconomics.
Note: Annual average variation in consumer prices by region, 2022. Source: FocusEconomics.
That said, inflation will still be far higher than the 2.9%
In addition to higher global commodity prices, domestic currency
average from 2010–2020. The drive to decarbonize economies
weakening and ingrained elevated inflation expectations
and a move towards greater regionalization of supply chains, as
will keep inflation in double digits in Sub-Saharan Africa and
countries prioritize security of supply over low costs, will provide
Latin America. In these regions, weak monetary transmission
upward pressure.
mechanisms will reduce the effectiveness of higher interest
rates as a way of taming inflation. In the Middle East, inflation
will largely be driven by economic disruption in countries such
as Lebanon and Yemen, as well as ongoing sanctions on Iran.
Finally, wage pressures are an important factor driving pressures
in advanced economies.

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FOCUSECONOMICS Special Report: Inflation July 2022

Key risks U.S. and the Euro Area respectively.

Risks to the global inflation outlook are myriad, and exist in The impact of developed economies’ monetary tightening on
both directions. emerging market currencies will also be important to watch.
Higher developed-market interest rates could lead emerging
The evolution of the Russia-Ukraine war: A quick end to the economies to suffer capital outflows and currency depreciation,
conflict does not currently appear to be in sight. If a peace deal temporarily exacerbating price pressures in emerging economies.
was to be reached, this would support Ukrainian agricultural
exports, which have plummeted due to Russia’s port blockade. Oil market developments: OPEC is currently failing to meet
However, Western sanctions on Russian energy exports would its monthly production targets, due to longstanding supply
likely stay in place regardless, keeping energy prices fairly high. constraints in some African countries and an unwillingness by
In contrast, an intensification or prolongation of the conflict would Saudi Arabia to bridge the gap. This trend is likely to continue.
mean further disruption to world agricultural supply. There could Moreover, Russian oil output will dwindle as Western sanctions
also be more sanctions from the West on Russian oil and gas, bite. Several sources of supply uncertainty are present. The
with Russia potentially retaliating by cutting off more of Europe’s outcome of talks on a new Iranian nuclear deal are key: a
gas supply. deal could lead to the rollback of U.S. sanctions and see 1 million
barrels per day of Iranian oil added back to the market. Similarly,
China’s Covid-19 stance: At present, China’s government the U.S. recently eased sanctions on Chevron’s Venezuela
appears wedded to its strategy of stamping out new Covid-19 operations. A broader easing of U.S. sanctions on Venezuela
outbreaks rather than living with the virus. This runs the risk of is possible, which would boost world oil supply. Political tensions
renewed lockdowns if cases spike, which would have a knock-on in Libya between rival factions pose a downside risk to oil
effect on global supply chains and put upward pressure on world output; at end-June, oil shipments were reportedly suspended
inflation, while simultaneously keeping Chinese inflation subdued. from two key Libyan ports.
That said, Beijing could eventually deem the socioeconomic cost
of its zero-Covid strategy too high and reopen the economy fully.
Insight from our analysts
This would likely weigh on global inflation and boost demand-
push inflation within China. “Over the last few decades, central bank credibility, new inflation
targets and several global factors had brought inflation structurally
The impact of monetary policy: Central banks are tightening down. In particular, globalisation and digitalisation were two
monetary policy around the world. However, the discrepancy enormous drivers of deflation or disinflation. Just looking at these
among our analysts over the scope of rate hikes is large. In the structural trends, we think that the coming years will bring more
U.S. for instance, expectations range from 50 to 225 basis upward pressure on prices. This is what we call 3D inflation, ie,
points of additional tightening this year. inflation structurally driven by decarbonisation, deglobalisation
and demographics.”
Size of Fed hikes in basis points, end-June to end-2022
Analysts at ING on the long-term inflation outlook
250

225

“With rapidly slowing growth momentum and a Fed committed to

200
restoring price stability, we believe a mild recession starting in Q4
2022 is now more likely than not. Financial conditions are likely to
150
149
tighten further, consumers are experiencing a significant negative
sentiment shock, energy and food supply disruptions have
100
worsened and the outlook for foreign growth has deteriorated.
All these factors will likely contribute to the expected downturn.”
50
Analysts at Nomura on their forecast for the U.S.
50

“While the prospect of OPEC+ producing at full tilt post-September

0
Minimum Consensus Maximum
may be welcomed by a global economy reeling from currently
Note: Projections for the size of increases in the Federal Funds Target Rate by end-2022. The
high energy inflation, there is a major difference between what
Target Rate is currently at 1.50–1.75%. Source: FocusEconomics. can be agreed and what can actually be achieved. Among the
Similarly, our panelists’ forecasts for rate hikes by the ECB OPEC core, only Saudi Arabia and the UAE have meaningful
this year range from 50 to 150 basis points. If central banks spare capacity, estimated at around 2.7m b/d as of May this year
hike interest rates to the upper end of our forecast range, this according to the IEA. Nigeria and Libya have room notionally
would likely weigh notably on economic activity, and dampen to increase but long-standing issues around maintenance in the
inflation in turn. Indeed, a small minority of our analysts now former and persistent political unrest in the later keep their ability
anticipate a recession in developed economies over the to respond to high oil prices minimal.”
coming 18 months as their central scenario. For example, in Edward Bell, senior director at Emirates NBD, on OPEC
2023 Nomura and Berenberg forecast contractions in GDP in the

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ECONOMIC FORECASTS FOR KEY INDICATORS IN 132 COUNTRIES IN 12 REGIONS

MAJOR ECONOMIES & SWITZERLAND G7 countries (United States, Canada, Japan, United Kingdom, Euro area, France,
Germany & Italy), Switzerland and overview of the BRIC countries
EURO AREA Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania,
Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia and Spain
NORDIC ECONOMIES Denmark, Finland, Iceland, Norway and Sweden
CENTRAL & EASTERN EUROPE Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania,
Slovakia and Slovenia
CIS PLUS COUNTRIES Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan,
Turkmenistan, Ukraine and Uzbekistan
SOUTH-EASTERN EUROPE Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus, Greece, Kosovo, Montenegro, North
Macedonia, Romania, Serbia and Turkey
EAST & SOUTH ASIA Bangladesh, China, Hong Kong, India, Korea, Mongolia, Pakistan, Sri Lanka, Taiwan, Australia and New
Zealand
ASEAN ECONOMIES Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam,
Australia and New Zealand
LATIN AMERICA Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay and Venezuela
CENTRAL AMERICA & THE CARIBBEAN Belize, Costa Rica, Cuba, Dominican Republic, El Salvador, Guatemala, Ha
iti, Honduras, Jamaica, Nicaragua, Panama, Puerto Rico and Trinidad and Tobago
MIDDLE EAST & NORTH AFRICA Algeria, Bahrain, Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Morocco, Oman,
Qatar, Saudi Arabia, Tunisia, United Arab Emirates and Yemen
SUB-SAHARAN AFRICA Angola, Botswana, Cameroon, Côte d’Ivoire, DR Congo, Ethiopia, Ghana, Kenya, Mozambique,
Nigeria, Rwanda, Senegal, South Africa, Tanzania, Uganda, Zambia and Zimbabwe
REAL SECTOR GDP per capita, Economic Growth, Consumption, Investment, Industrial Production, Unemployment Rate,
Fiscal Balance and Public Debt
MONETARY & FINANCIAL SECTOR Money, Inflation Rate, Policy Interest Rate and Exchange Rate
EXTERNAL SECTOR Current Account, Trade Balance, Exports, Imports, International Reserves and External Debt

PRICE FORECASTS FOR 34 COMMODITIES IN 4 MAIN GROUPS

ENERGY Brent Crude Oil, WTI Crude Oil, Coking Coal, Gasoil (European market), Gasoline (U.S. benchmark), Natural Gas,
Thermal Coal and Uranium
BASE METALS Alumina, Aluminium, Cobalt, Copper, Iron Ore, Lead, Molybdenum, Nickel, Steel (European and U.S.
markets), Tin and Zinc
PRECIOUS METALS Gold, Silver, Palladium and Platinum
AGRICULTURAL Cocoa, Coffee, Corn, Cotton, Palm Oil, Rice, Soybeans, Sugar, Wheat and Wool

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