Kerem Alkin Analyzes Shifting Global Inflation Dynamics in Daily Sabah Column

In a Daily Sabah column published on April 25, 2024, economist Kerem Alkin examines the shifting global inflation dynamics and their implications for the world economy. Alkin highlights that the global economy is expected to continue growing at 3.2% during 2024 and 2025, with a slight acceleration in advanced economies offset by a modest slowdown in emerging markets.

According to Alkin, global inflation is forecast to decline steadily, from 6.8% in 2023 to 4.5% in 2025, with advanced economies returning to their inflation targets sooner than emerging markets. Despite policy rate hikes, the global economy has shown surprising resilience, with changes in mortgage and housing markets moderating the impact.

Why this matters: The shifting global inflation dynamics have significant implications for the world economy, affecting growth prospects, monetary policy decisions, and the convergence of living standards across countries. Comprehending these trends is vital for policymakers, businesses, and investors navigating the evolving economic landscape.

However, Alkin cautions that the pace of expansion is expected to be low by historical standards, and the speed of convergence toward higher living standards for middle- and lower-income countries has slowed. He emphasizes the need for monetary policy to ensure a smooth landing for inflation, while fiscal consolidation and supply-enhancing reforms are necessary to boost growth and income convergence.

Alkin also notes that spillovers from shocks in G20 emerging markets, particularly China, have increased and can have significant ramifications for global activity. This requires recipient economies to maintain sufficient buffers and strengthen policy frameworks to withstand potential disruptions.

In the context of the eurozone, European Central Bank (ECB) governors are highlighting cooler inflation as a sign that the bank could cut interest rates before the U.S. Federal Reserve. ECB policymakers argue that the inflation problem has eased in the eurozone and that their 2% inflation target is in sight. However, surprisingly strong inflation readings in the U.S. have pushed back investor bets on a rate cut by the Fed, complicating the picture for eurozone policymakers.

Alkin's analysis underscores the complex interplay of global inflation dynamics, economic growth, and monetary policy decisions. As he states, "The European economy is not like that of the United States and that it is not the totality of what affects the European economy." Navigating these shifting dynamics will require careful monitoring and appropriate policy responses from central banks and governments worldwide.

Key Takeaways

• The global economy is expected to grow 3.2% in 2024-25, with advanced economies accelerating.
• Global inflation is forecast to decline from 6.8% in 2023 to 4.5% in 2025.
• Monetary policy and fiscal reforms are needed to ensure a smooth landing for inflation.
• Spillovers from G20 emerging markets, especially China, pose risks to global activity.
• ECB may cut rates before the Fed, but strong U.S. inflation complicates eurozone policy.