Two years after inflation began to skyrocket, investors, economists and politicians are still divided on the way forward. Yes, headline inflation in major advanced economies has eased from multi-year highs, coronavirus-induced inflationary pressures are easing, and Europe’s gas crisis has eased. However, labor markets are inelastic and price pressures, except for volatile energy and food, remain elevated. The stakes are high for politicians and marketers who have repeatedly suffered from inflation.

With gas prices in Europe at their lowest level since August 2021 and down 85% from their peak in 2022, eurozone inflation is no longer in double digits. The openness of China has led to an increase in oil prices. But with Brent at $83 a barrel, it is still 40% lower than $139 just after the invasion of Ukraine.

Supply chain disruptions caused by the coronavirus and the war in Ukraine, which are key drivers of rising inflation, have declined sharply. A New York Federal Reserve (NY Fed) indicator suggests global supply chains are “back to normal” as pressures are lower than pre-pandemic levels as China reopens, lifting stringent virus-related restrictions as a last resort improving the situation. Adam Slater, chief economist at Oxford Economics, notes that the Fed’s rate outpaces inflation in the G7 by about 12 months. That means their core inflation, excluding food and energy, could drop to around 2.5% by the end of the year and below 2% in early 2024, he said.

Finally, in the labor market, the Fed’s cost-of-employment index is slowing down and showed the smallest increase in a year in the fourth quarter. “If this is a strongly growing economy, where the demand for workers far exceeds the supply, one would expect wages and labor costs to rise,” concluded James Knightley, chief international economist at ING. Real wages in Japan fell by the most in nearly nine years in January, while in Italy they grew by just 1.1% in 2022, with an average inflation rate of 8.7%.