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Inflation is about to jump, but will the rise persist?

Inflation will rise sharply in every major economy in the months ahead, driven by a rebound in energy inflation, tax changes, and supply shortages. On average, CPI inflation in the advanced economies looks set to rise from 1.1% in February to 2.6% in May. But while the increase will probably prove transitory in the euro-zone, we expect a higher rate of core inflation to persist in the US. The US recovery is already relatively advanced, and the economy is set to benefit from another round of fiscal stimulus. The labour market looks tighter than that in the euro-zone and there is firmer evidence of rising input costs being passed on to consumers. What’s more, the Fed has made a more decisive shift towards tolerating higher inflation than the ECB, which has served to boost inflation expectations further.

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