2024 Global Market Outlook Midyear Update

Reaccelerating inflation to make central banks walk tightrope

Inflation

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Inflation is notoriously difficult to predict, and it has continued to baffle most forecasters since the onset of the pandemic in 2020. However, it’s becoming clear that inflation isn’t going away, and we see a meaningful risk that it will reaccelerate as U.S. exceptionalism moderates and global growth broadens.

Developed market services inflation is proving sticky
(Fig. 4) Goods inflation is falling much faster

As of April 30, 2024.
y/y=year-over-year.
Source: U.S. Bureau of Labor Statistics, EU Statistical Office of European Communities, UK Office for National Statistics/Haver Analytics.

Several factors drive risk of reaccelerating inflation

The big decrease in global inflation from 2022 to 2023 was due to goods disinflation, which is the easy part of taming inflation. Now services inflation, which is sticky, needs to fall. But for this to happen, the labor market must have space to adjust—wage pressures drive services inflation, and higher unemployment is required to control wage pressures. Artificial intelligence (AI) is one countervailing force that could help tame services sector wage growth, but AI will take time (and expense) to implement, making it a longer‑term factor.

Fiscal spending in an election year will also put upward pressure on inflation, and energy prices—which have been a headline inflation tailwind since surging in 2022 following Russia’s invasion of Ukraine—are a wildcard that could easily spike again if conflict in the Middle East escalatesor other geopolitical hot spots erupt.

These factors would, of course, make central banks’ difficult balancing act between supporting growth and restraining inflation that much harder.

Because we see renewed upward pressure on inflation, investors may benefit from exposure to real assets such as commodities—including gold and silver—and real estate or to inflation protected government bonds. Real assets tend to hold up well in inflationary environments, while inflation-protected government debt has principal and interest payments that adjust based on inflation data.

Nikolaj Schmidt,
Chief Global Economist

Ken Orchard,
Head of International Fixed Income

Peter Bates, CFA
Portfolio Manager, Global Equities

Tim Murray, CFA
Capital Markets Strategist,
Multi‑Asset Division

Global Market Outlook Midyear Update insights

2024 Global Market Outlook Midyear Update

How central bank policy could impact your portfolio

US Equities

US stocks face a broadening, not a rotation

International Equities

International stocks still appear to be good value

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