- We track inflation momentum using the Fed’s favourite measure.
- This is done on a 3-month over 3-month, seasonally adjusted and annualised basis.
- Inflation momentum is at or below trend in most economies.
- The trend spans across headline and core CPI.
- Central bankers will breathe easy in the initial months of the year.
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Commentary: Global inflation trends
Global inflation trends are a far cry from the post pandemic days, when high single digit inflation characterised most economies in the world. While price levels are substantially higher than where they were five years ago, leading to sustained angst over the cost of living, the rate of the change of prices has eased considerably since then.
Our preferred measure of gauging the direction of the CPI is the one favoured by Fed officials, which is calculated on a 3-month over 3-month, seasonally adjusted and annualised basis. Instead of looking at headline CPI, we apply this calculation to core, stripping out traditionally volatile food and fuel products.
The inflation momentum analysis is consistent with a rather comfortable phase for global central bankers. Among the geographies we track, which include Asia, US, and EU, inflation momentum is below 3% virtually everywhere. Typically, high inflation economies like India and Indonesia have below-trend inflation pressure. The US, after a prolonged period of heightened concern, has core inflation momentum below 2%, a big source of relief.
Favourable base effect, softening labour market (especially in the US), supply chain normalisation, exchange rate strength against the US dollar (for the non-US world), have all played a role in this benign development. But while core inflation may be the preferred measure for economists, public sentiment does not distinguish between headline and core prices. So, what is the trend for food and fuel?
There too, the picture is devoid of worries. Despite US interventions in Venezuela and Iran, oil prices are flat, in fact declining on a year-on-year basis. Food prices, whether it is soybean or wheat, are either flat or declining. Metals prices, whether industrial or precious, are up sharply, but they don’t make or break a consumer price index.
Monetary policy authorities, armed with this data, have stepped into 2026 with some degree of comfort. Asset price valuation, financial stability, geoeconomic risks, and great power rivalry will keep them up at night. At least they won’t have to worry about above-target inflation for the time being.
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