Global Inflation Watch: Disinflation to continue outside the US

Inflation has fallen further towards central banks’ targets and we expect it to remain subdued across most of the world. Tariffs will cause a temporary uplift in the US. But elsewhere, their economic drag will add to the disinflationary effects of loosening labour markets and falling energy prices. We see little risk of large retaliatory tariffs or major supply disruptions. Accordingly, most central banks should cut interest rates a bit further. The US, Japan and China stand apart. The policy-induced rise in inflation will keep the Fed on hold this year while strong wage growth will encourage the BoJ to raise interest rates. In contrast, excess manufacturing capacity in China will cause deflation to persist.