May Global Macro Monthly - Good medicine tastes bitter
- Inflation is prevalent across international economies. It appears close to a peak in many economies, but further energy price gains and supply disruptions risk further increases and a slower reversal than previously hoped.
- In many cases, higher inflation is associated with tight labour markets – often tighter than before the pandemic. An easing here is required to restore price stability.
- Yet early signs of slowdown are emerging. China’s COVID policy makes it a special case. More generally, interest-rate sensitive sectors like housing, or price sensitive sectors like consumers are starting to soften. But this is not universal and some regions still see solid growth.
- This has created a near universal set of conditions for tighter monetary policy with most central banks tightening or continuing to tighten policy. The BoJ and PBoC are amongst the largest exceptions.
- Yet these are difficult conditions for markets. Central banks desires for now appears geared to yet further tightening of financial conditions.