Inflation: The Never-Ending Story

17 Jan

Believe me, I would be happy never to speak of inflation again after its domination of conversations in 2024. Globally, inflation has been hard to shake of late; yet 2025 looks somewhat more promising than previous years. What are analysts predicting moving forward?

Towards the end of 2024, the developed world managed to shake off the sticky, high inflation that plagued markets since late 2022. In the UK, inflation eased throughout the year in response to aggressive rate hikes from the Bank of England (BoE). The figure for November floated around 2.3%, slightly higher than the 1.7% in September. However, the BoE still believes that inflation is likely to tick upward into 2025 and end the year at roughly 2.75%.

The US told a similar story, with the Consumer Price Index (CPI) at 2.7% for the year to the end of November, approaching the Fed’s 2% target but remaining persistently high. With the promise of import tariffs, inflation is likely to tick upwards throughout 2025. It’s uncertain what the Fed will do with interest rates to combat this potential inflation spike. Combined with increased pressure from the White House to cut rates, the US inflation path in 2025 remains unclear.

Emerging markets have experienced both hyperinflation and deflationary risks across various regions. Chinese consumer inflation hit a five-month low in November. Reuters has reported that fresh food prices continue to fall in China, alongside factory deflation, leading to speculation that it may enter deflationary territory. House prices, both new and pre-owned, are still falling by roughly 0.2% and 0.35% respectively month on month, continuing their property crisis.

However, global forecasts are generally optimistic (see Vanguard forecasts below). The biggest potential concern is the Eurozone, with an expected GDP growth of just +0.5%, notably lower than other developed regions. Given the possible impact of the Trump tariffs, which are likely to cause issues in Europe as well, many analysts' forecasts remain relatively reserved.