Quick Bite | Inflation expectations falling

In the US and the euro area, market-based measures of inflation one year ahead have returned closer to the central banks’ 2% target from 6% last year. In emerging markets, market-based measures of inflation one year ahead have also been falling, but at a slower pace.

Expected pause ahead

These disinflation hopes have been accompanied by central banks continuing to raise rates, but in smaller increments, amid expectations that they will soon pause to observe the impact. In many economies, this has led to yields on long-dated government debt falling below short-dated maturities. Historically, such an inversion of the yield curve often precedes recessions, but the expectation is that recessions, should they occur, will be mild. Markets appear to be hopeful that global economic prospects will return to their long term average growth rates next year and are investing accordingly.

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