October Inflation Tracker: Uneasy Time For Central Banks

  • Global inflation will pose a policy challenge for central bankers as it continues to head higher, although not at the same pace as a few months ago. According to Fitch Solutions’ estimates, global inflation rose by 4.2% y-o-y in September, which is almost double the 2.2% average rate experienced in the five years prior to COVID-19 and well above most central banks’ mid-level inflation targets. 
  • In turn, many emerging market (EM) central banks have been hiking, and some of them, such as Russia and Chile quite aggressively. Developed market central banks (DM), such as the Bank of England and the US Federal Reserve (Fed), have slowly become more hawkish. 
  • Rising oil prices have also contributed to a rise in inflation expectations, as proxied by the US 10-year breakevens. This combined with supply chain issues suggest that inflation continues to broaden out across more countries, increasing pressure on central banks to turn more hawkish.

(Source: Fitch Solutions)