Global Inflation and Interest Rates: Where we headed now?

Inflation has been slowing across the globe, raising hopes of a soft landing in 2024. However, while core goods prices are stabilizing in many regions, core services prices remain elevated and labor markets are still tight.

So lets look into bog markets to then analize how it will be reflecting till 2024 Q4 on the mid and small markets globally.

United States: In 2023, prices for everyday goods in the U.S. stayed mostly the same, returning to levels close to what they were before the pandemic. However, the cost of services has continued to rise. Economists predict that price increases will slow down even more in 2024 as supply chain issues improve. They believe the key to getting inflation fully under control will be a slightly weaker job market, which will likely happen as interest rates go up. This should eventually lead to lower service costs and bring overall inflation closer to the desired level. While policymakers will be watching core inflation closely this year, food and energy prices could also play a big role. Food price increases are expected to remain modest, but changes in energy prices could be more dramatic depending on what happens in the world.

United Kingdom: The UK's core inflation is expected to stay high in 2024, around 3.1% in June and December. Economists believe bringing it down to the Bank of England's 2% target will be challenging. Similar to the US, service costs are driving inflation, but recent data and a potential energy price cap drop offer some hope. If core inflation stays high, the Bank of England might cut interest rates sooner than expected.

China: China's situation is quite the opposite of the UK and US. Their economy is actually experiencing deflation, meaning prices are falling overall. This is due to a combination of factors, including lower global commodity prices, cheaper food (especially pork), and government policies focused on increasing supply rather than stimulating consumer demand. However, experts predict this deflation won't last and China will see low, but not negative, inflation in 2024. Stabilizing pork prices, steady oil prices, and the fading impact of China's reopening are all expected to contribute to this. As a result, overall inflation is expected to rise slightly to an average of 0.9% this year, with core inflation (excluding food and energy) reaching 1.2%.

Emerging markets:

• Resource Management and Exports: A country's natural resources, strategies for exporting goods and IT services, and overall inflow of foreign direct investment (FDI) in core projects with long-term benefits are crucial. These benefits can include tourism, a rise in the number of SMEs launched by expats and investors, and a significant number of SMEs growing into global corporations within the next 3-5 years.
• Financial Services and Infrastructure: In terms of numbers, service fees are likely to rise further, and banks may continue raising interest rates to maintain stability for the next 6 months. Additionally, the quality and accountability of a country's infrastructure will significantly contribute to stable domestic market growth.
• Investing in Human Capital: Economies that fail to invest in both human capital (education and skills) and improvements in citizens' lives will face renewed negative impacts for ordinary people.
• Financial Literacy and a Strong Middle Class: An educated and financially literate citizenry empowers governments to create a strong middle class. This, in turn, acts as a form of soft power, enabling emerging markets to participate in global trade and wealth creation through smarter overseas investments. This will organically contribute to a growing ecosystem of interconnected markets and countries that rely on FDI to maintain momentum.

Overall, global economy is expected to grow at a moderate pace of 3.1% this year and 3.2% next year. This is slightly better than previous predictions due to stronger economies in the US, some developing countries, and stimulus efforts by China. However, growth will likely be slower than the historical average. This is because central banks are raising interest rates to fight inflation, governments are cutting back on spending due to high debt, and productivity growth is weak. The good news is that inflation is falling faster than expected, reaching 5.8% this year and an even lower 4.4% next year. This is due to improving supply chains and tighter controls on money by central banks.

Leyla Rasulzade

Business Development Manager (BDM) | International Communication Manager