Extract from our "Falling Inflation to Bring Down the Dollar in 2023" research paper, published on the 4 April, 2023. Register for a free trial* to access the full paper.
We expect US inflation to continue to decline at roughly the same pace as it rose in 2021 and the first half of 2022: historically, there has been scant evidence of downside stickiness in inflation, even if there is evidence of downside price and wage level stickiness. Goods price inflation in the US, in fact, could turn negative later this year. Inflation in Europe will also likely decline sharply this year, albeit with a six-month lag to the US.
- Historically, inflation in major economies has been more global than local, i.e., global factors have been dominant, with globalisation in trade. The current stark divergence in inflation rates around the world seems to us to be an aberration rather than a new normal. We expect to see a general reversion back to the old normal in inflation.
- China’s recovery will likely see aggregate supply normalisation lead aggregate demand normalisation, suggesting in turn that inflation in China will stay low as China bounces back toward its trend growth.
- The Fed and the ECB are likely to be very close, if not already past, their peak hawkishness: the next actions will likely be rate cuts, which may take place later this year.
- The US dollar is vulnerable to substantial (10-15 percent) depreciation in the coming 4-6 quarters
The full report contains the following sections:
- Chinese PPI is negative and will weigh on US goods prices
- Exceptional divergences in inflation likely won’t persist
- The Fed is likely done with rate hikes
- This is a set up for dollar depreciation
- Bottom line
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This communication is issued by Eurizon SLJ Capital Limited (“ESLJ”), a private limited company registered in England (company number: 09775525) having its registered office at 90 Queen Street, London EC4N 1SA, United Kingdom. ESLJ is authorised and regulated by the Financial Conduct Authority (FRN: 736926). This communication is treated as a marketing communication intended for professional investors only and is provided only for information purposes. It has not been prepared in accordance with legal and regulatory requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. It does not constitute research on investment matters and should not be construed as containing any recommendation, advice or suggestion, implicit or explicit, with respect to any investment strategy or financial instruments, or the issuers of any financial instruments, or a solicitation, offer or financial promotion relating to any securities or investments. ESLJ and its affiliates do not assume any liability whatsoever for the contents of this communication, save to the extent agreed in any written contract entered into between ESLJ and the recipient, and do not make any representation or warranty as to the accuracy or completeness of any information contained in this communication. Views are accurate as at the time of publication. Opinions expressed by individuals are their own and do not necessarily reflect those of ESLJ or any of its affiliates. The value of any investment may change and an investor may not get back the original amount invested. Past performance is not an indicator of future performance. This communication may not be reproduced, redistributed or copied in whole or in part for any purpose. It may not be distributed in any jurisdiction where its distribution may be restricted by law and persons into whose possession this communication comes should inform themselves about, and observe, any such restrictions.
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