Bumpy ride back to target

Progress in getting back to central bank targets has slowed in several major economies. In advanced economies, a rebound in energy inflation has offset most of the drag on headline rates from lower non-energy goods inflation, and services inflation has been slow to fall. While inflation may take a little longer to return to targets than we had anticipated six months ago, the fundamentals are still in place for inflation to be within half a percentage point of 2% by year-end throughout DMs. We expect falling oil prices to once again drag on inflation by the middle of the year, and food inflation has a bit further to fall too. Benign supply chain conditions, plentiful inventories, and industrial overcapacity in China will help to keep a lid on core goods inflation. As for services, all leading indicators point to falling shelter inflation in the US. And below-potential growth, cooling labour markets, and weakening corporate pricing power suggest that non-housing services inflation will soften too.