Subdued global inflation masks regional variation

We expect global inflation to hover around 2.5% in the year ahead but there will be significant differences between economies. Goods inflation has a bit further to rise in the US which, coupled with elevated services inflation, will keep the Fed’s preferred measure of inflation, core PCE, around 3% in 2026. And while inflation in Japan will slow over the coming year, strong wage growth will ensure it runs well above previous norms. But at the other end of the scale, we expect inflation in the euro-zone to undershoot the ECB’s 2% target, while persistent over-investment will keep China in deflation. (See Chart 1.)