Washington: Inflation is proving stickier than expected in the US and Europe, creating a headache for central bankers and sowing doubts on whether investors are too optimistic about the world economy, the Wall Street Journal said.
The decline in inflation from highs of around 9% to 10% across advanced economies in 2022 represent the easy gains, as supply-chain blockages eased and commodity prices, especially for energy, normalized, the newspaper said.
The “last mile” is proving tougher. Underlying inflation, which excludes volatile food and energy prices, slowed to 3% in the second half of last year across advanced economies but has since moved up to 3.5%, according to JP Morgan estimates.
Economists’ and central banks’ forecasts of sustained falling inflation depend on “strong gravitational forces that are not yet validated in global labor costs, short-term expectations, or in recent signals from commodity markets,” JP Morgan wrote in a note. Services inflation remains elevated while goods prices, which h
ad fallen last year, are now moving higher, it noted.
That is forcing investors to rethink bets that inflation would steadily decline to central banks’ targets, generally around 2%. There are even concerns it could surge again, the newspaper said.
On Friday, the US Commerce Department reported that the price index of personal-consumption expenditures, the Fed’s preferred indicator of inflation, rose a relatively tame 2.5% in the 12 months through February, up modestly from 2.4% in January. Beneath the surface, the trend was less comforting. The index excluding food and energy climbed by 3.5% on an annualized basis in the three months through February, up from around 2% late last year.
The Wall Street Journal quoted Fed Chair Jerome Powell as saying on Friday that inflation is on a sometimes bumpy path toward 2%, and strong economic growth allows policymakers to wait. “Is progress on inflation going to slow for more than two months? We’re just going to have to let the data tell us that,” Powell said.
Sour
ce: Qatar News Agency