August Inflation Tracker: Closer To The Peak

• Global inflation seems to have stabilized at around 4.0% in July 2021, according to Fitch Solutions estimates. This suggests that inflation could be in the process of peaking, which would be in line with the easing of base effects as well as improving supply-side conditions as economies re-open. 
• Across the largest 24 economies that Fitch tracks on a monthly basis, inflation readings painted a mixed picture. Over the past month, 13 economies saw inflation come in higher than their reading in the previous month, eight economies saw slightly lower levels of inflation and three remained unchanged. Moreover, the number of above-target readings only inched higher by one count (Colombia). 
• It views this as a sign that its expectations that inflationary pressures are in the process of peaking and will most likely see a decline towards the end of Q3 and in Q4 seems to be echoed by financial markets. Indeed, inflation expectations, as proxied by the swaps market, point to inflationary pressures that remain somewhat elevated but anchored around pre-pandemic levels. 
• That being said, the agency does not expect a rapid decline in prices given that large supply-demand imbalances will persist for several months, and base effects will continue to flatter the inflation readings for several months yet. This means that even though inflation is peaking, it will remain elevated compared to pre-pandemic levels.

(Source: Fitch Solutions)