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IMF Still Sees Inflation Subsiding, But Forecast Misses Stand Out


One of the most remarkable (if unsurprising) charts from the IMF's latest World Economic Outlook is from a post-mortem of their inflation projections, which continually underestimated the reality of soaring prices (as they say, "forecast errors").

  • As recently as January 2022 they had expected inflation had already peaked around 5-6% and would come down across both emerging and developed countries over 2022-23. Their latest update has inflation peaking around 8% in developed markets and 11% in EM, in H2 2022. Overall 2022 annual CPI is seen at 7.2% in developed markets and 9.9% in EM.
  • For what it is worth given their acknowledged prior errors, they see 2023 global developed market CPI of 4.4% (3.5% US, 5.7% eurozone, 5.1% other), and EM at 8.1% in 2023 (Asia lowest at 3.6%, EM Europe highest at 19.4%).
  • The IMF cites unexpectedly buoyant demand due to fiscal stimulus, and supply side disruptions, for the forecast misses.
  • Among these factors, they appear to have underestimated the steepness of the Phillips Curve slope vs very flat pre-pandemic estimates.
  • That is now a common theme for central banks as they judge how far they need to tighten policy in order to sufficiently loosen the labor market to quell inflationary pressures.

Source: IMF October 2022 WEO

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