An International Monetary Fund blog by Pierre-Olivier Gourinchas said it looked like the global battle against inflation has largely been won.
After peaking at 9.4% year-on-year in the third quarter of 2022, the IMF projects headline inflation will fall to 3.5% by the end of next year, slightly below the average during the two decades before the pandemic, Gourinchas said. In most countries, inflation is hovering close to central bank targets, paving the way for monetary easing across major central banks.
GLOBAL ECONOMY UNUSUALLY RESILIENT
The global economy remained unusually resilient throughout the disinflationary process, he said. Growth is projected to hold steady at 3.2% in 2024 and 2025, but some low-income and developing economies have seen sizable downside growth revisions, often tied to intensifying conflicts.
US economic growth is strong, at 2.8% this year, but will revert toward its potential in 2025, Gourinchas said. For advanced European economies, a modest growth rebound is expected next year, with output approaching potential.
The growth outlook is very stable in emerging markets and developing economies, around 4.2% this year and next, with continued robust performance from emerging Asia, he said.
A MAJOR ACCOMPLISHMENT
The decline in inflation without a global recession is a major achievement Gourinchas said. The surge and subsequent decline in inflation reflects a unique combination of shocks: broad supply disruptions coupled with strong demand pressures in the wake of the pandemic, followed by sharp spikes in commodity prices caused by the war in Ukraine.
Those shocks led to an upward shift and a steepening of the relationship between activity and inflation, Gourinchas said. As supply disruptions eased and tight monetary policy started to constrain demand, normalization in labor markets allowed inflation to decline rapidly without a major slowdown in activity.
Clearly, much of the disinflation can be attributed to the unwinding of the shocks themselves, together with improvements in labor supply, often linked to increased immigration, he said. But monetary policy played a decisive role by keeping inflation expectations anchored, avoiding deleterious wage-price spirals, and a repeat of the disastrous inflation experience of the 1970s.
Despite the good news on inflation, downside risks are increasing and now dominate the outlook, Gourinchas said.
An escalation in regional conflicts, especially in the Middle East, could pose serious risks for commodity markets, he said. Shifts toward undesirable trade and industrial policies can lower output relative to our baseline forecast significantly.
Monetary policy could remain too tight for too long, and global financial conditions could tighten abruptly, he said.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $187.00 per cwt to $193.00, compared with last week’s range of $187.12 to $197.20 per cwt. FOB dressed steers, and heifers went for $296.64 per cwt to $299.32, compared with $297.87 to $302.65.
The USDA choice cutout Wednesday was down $1.33 per cwt at $306.94 while select was down $1.26 at $279.66. The choice/select spread narrowed to $28.28 from $28.35 with 99 loads of fabricated product and 34 loads of trimmings and grinds sold into the spot market.
The USDA-listed weighted average wholesale price for fresh 90% lean beef was $334.54 per cwt, and 50% beef was $73.56.
The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $1.44 to $1.55 a bushel over the Dec corn contract and unchanged in Kansas at $0.25 over Dec, which settled at $4.26 a bushel, down $0.02.
The CME Feeder Cattle Index for the seven days ended Tuesday was $249.02 per cwt, down $0.62. This compares with Wednesday’s Nov contract settlement of $246.40, down $0.35.