Global inflation could top 4% by early 2027, Capital Economics says

what happened

Capital Economics, as reported by Market Talk, says global inflation climbed from 2.6% in January to 3.6% in August and may get worse. The main driver is elevated energy prices. The firm forecasts Brent staying near $100 a barrel into early 2027, which will lift fuel inflation, while pricier natural gas will raise household energy costs across most advanced economies.

Central banks in Asia are also leaning hawkish. South Korea's third-quarter GDP grew 1% on quarter, beating the 0.7% consensus, and Moody's Analytics expects a rate hike in November. The Bank of Thailand is expected to hold its policy rate at 1.00%, according to all 14 economists polled by The Wall Street Journal. A Bloomberg survey shows 23 of 25 economists expect the Reserve Bank of New Zealand to lift its cash rate to 3.0%.

In Australia, a survey by ANZ and Roy Morgan put consumer inflation expectations above 6%, and markets see a fifth RBA hike this year if core inflation stays elevated in the third quarter.

why it matters

Energy-driven inflation pushes rate expectations higher and supports bond yields, which weighs on long-dated bonds and can strengthen currencies of countries where central banks are tightening. For markets, Australian CPI data and the decisions of Asian central banks are likely to drive volatility in the coming days.

market impact

Bonds and currencies: tighter policy expectations lift yields and the AUD, pressuring long-dated bonds

tags

instruments