World slows down, but inflation offers no respite

There are still no signs of declines in commodity prices. Geopolitical risks contribute to this situation and, at least for now, there is no prospect of a ceasefire in Russia’s war with Ukraine. With regard to oil, even though the U.S. government has announced the release of up to 180 million barrels from its strategic oil reserve in the next six months, prices remain volatile and high. The imbalance between supply and demand in the international market continues and it is expected to worsen in the short term, as sanctions tighten and the global market’s access to Russian oil becomes more difficult.

The expectation is that global inflation will remain high, demanding monetary tightening, which so far has been marginal or merely rhetorical in most countries. In the United States, as activity remains very robust, with strong wage pressure, interest rates are expected to rise faster and stay above the neutral level in 2023. It is too early to tell whether they will rise enough to get inflation under control and bring it back to the target. In the euro area, the war has had more negative effects on activity. Even so, the European Central Bank is expected to end its asset purchases in the second half of the year, and possibly increase the interest rate, which remains negative, at the end of the year.

Enjoy the reading of the full report!