Quick Thoughts: Navigating Uncertainty In A Rapidly Changing World
The recent volatility across capital markets is challenging established norms around how the path forward may unfold. Here are some key thoughts:
- Inflation is rising globally, but the pace of acceleration depends on where you are. The US consumer price index (CPI) has risen by over 8% in the past year, similar to Europe’s 7.4% increase. These are the highest levels since the early 1980s. China sits at approximately 2.1%, which has been increasing slowly but still near multi-decade lows.1
- Gross domestic product (GDP) growth is expected to decelerate globally, with emerging markets recovering before developed markets. The International Monetary Fund (IMF) forecasts US GDP growth to slow in 2022 relative to 2021, and then slow again in 2023 relative to 2022.2 China is expected to also slow in 2022 but then re-accelerate in 2023. These two economies account for 42% of total global GDP.3
- Expectations for future inflation are leading to diverging central bank action globally. In the US, higher retail gasoline prices have historically led to higher expectations of inflation, leading to higher actual inflation. The Federal Reserve is on a path of monetary tightening. Meanwhile, China’s zero-COVID policy has impacted demand, which has muted inflation. This has allowed for China’s policymakers to have flexibility in maintaining or lowering rates.