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Core inflation to fall, but upside risks have grown

Headline inflation looks set to fall sharply as energy effects subside and the let-up in product shortages reduces goods inflation further. We also expect services inflation to decrease as demand weakens, allowing central banks in most advanced economies to cut interest rates faster than markets envisage. But the recent stickiness of core inflation, strength of wage growth, and resilience of economic activity highlight that the risks are skewed to the upside. Among the Emerging Markets, persistent price pressures in Latin America and Emerging Europe will mean that policy easing is more gradual than the consensus expects.

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