Despite significant hikes in major interest rates by global central banks, inflation expectations continue to remain high across the world, according to the Economic Experts Survey (EES) for Q2 2023 conducted by the ifo Institute and the Swiss Economic Policy Institute. Although a mild decline in the anticipated inflation rate has been observed over the last three quarters, the change has been marginal, and the current average inflation expectation for 2023 stays at 7%.
Stagnation of Global Inflation Expectations
This average inflation expectation mirrors the first quarter's data of 2023, demonstrating a stagnation in the short-term inflation expectations worldwide. Economists project high inflation rates globally for the following years as well. There is, however, a slight anticipated decline in inflation, with an average expected rate of 6% for 2024 and 4.9% for 2026. Despite these decreases, the inflation expectations remain considerably high.
Regional Variations in Inflation Expectations
Inflation expectations differ significantly across global regions. Economists in the Americas anticipate a high inflation rate, albeit slightly lower than the previous quarter's expectations. South America, in particular, sees notably lower inflation expectations than the preceding quarter, which had seen a sharp rise.
Contrastingly, Africa exhibits a trend of rising inflation expectations, although the pattern varies across the region. In Asia, short-term inflation expectations in many regions have declined from previous quarters, but expectations for 2024 and 2026 have recently surged, particularly in East Asia. In Oceania, experts predict a fall in inflation rates in the medium term, but their assessments have increased relative to the previous quarter.
Europe presents the world's lowest inflation expectations for the current year and the years 2024 and 2026. However, these expectations are still higher than the European Central Bank’s inflation target of just under 2%. Furthermore, inflation expectations vary significantly within European regions, with Eastern Europe seeing much higher expected inflation rates for 2023 than other parts of the continent.
Worldwide Expectations of High Inflation
Economic experts from around the globe, who participated in the EES, anticipate inflation rates to remain high in the upcoming years. The expected inflation rate is 7% for 2023, 6% for 2024, and 4.9% for 2026. Inflation expectations in 2023 for the US, UK, Ireland, Canada, and Germany are projected to be 4.6%, 7.6%, 5.5%, 4.4%, and 5.8%, respectively.
These figures are substantially lower than the global average and have seen a marginal decline from the previous quarter’s survey. Conversely, regions like South America and large parts of Africa expect exceptionally high inflation rates, specifically 23.3% for South America.
The Q2 2023 EES, which had 1,405 participants from 133 countries, underlines the persistent concern of high inflation worldwide despite interventions by central banks. As ifo researcher Niklas Potrafke puts it, "We’ll have to brace ourselves for high inflation rates."