Resilient economic growth, sticky inflation driven by higher energy prices and continued geopolitical uncertainty are complicating the path back to central-bank price targets. We believe policymakers are likely to adopt a tightening bias but remain data dependent.
Inflation has dominated headlines since Covid, amplified more recently by higher oil prices and uncertainty surrounding the conflict with Iran. And it’s not a problem unique to the U.S. Since the pandemic, inflation across many global economies has remained persistently above historical norms — highlighting the resilience of underlying cost dynamics.
This stickiness makes it more difficult for central banks to bring inflation back toward the widely targeted 2% level in the near term. As a result, policymakers are likely to remain highly data dependent, particularly as geopolitical uncertainty continues. We would not be surprised if the outlook for central bank policy around the world shifts toward a more restrictive stance, with the possibility of further tightening if inflation proves more persistent.
