Gerard Lyons, chief economic strategist at Netwealth, says he feels inflation has peaked across developed markets, but that the level at which inflation could settle will be in the range of 3-4 per cent.
He expects inflation to “decelerate rapidly” this year, but does not believe that interest rates will be cut.
Lyons says monetary policy was too loose for too long, “and that rates were being cut when they should have been tightened. I think interest rates should plateau soon and not be cut. Instead, they should stay at the same level, and potentially rise in future”.
He believes that some of the factors which caused persistently low inflation in the decades prior to the pandemic, such as globalisation, may have a diminished impact in future, leading to inflation staying within the 3-4 per cent range, rather than the 1-2 per cent range of recent history.
Lyons says there is a risk that central banks could overcompensate and push rates too high this time, as they waited too long to start raising rates.
Miller (pictured), who was one of a group of economists that contributed to the latest World Economic Forum outlook document, says: “We haven’t seen rates rise this rapidly for a long time and it is squeezing household incomes.
“I have to say I was one of the people who thought inflation would only rise to quite moderate levels, as I expected economies reopening to lead to aggregate demand shifting away from goods to services, and that would normally bring inflation down. But the Russian invasion of Ukraine changed that – which perpetuated the supply side issues from the pandemic.”
He adds that while energy prices have now fallen, they have had the impact on wages that Moec feared, and so rates have had to rise in order to combat future expectations around inflation.
‘US will enter recession in 2023’
Miller believes that while there is a lag in terms of the full impact of monetary policy changes being felt in the real economy, “there is also an immediate impact that people can see in terms of their mortgage rate”.
“I also think we are starting to see layoffs already, and that will reduce the wage pressures in the economy. Some of the more positive economic news we are seeing now is, however, about what has already happened,” he says.
“Our own economic forecasts are that global economic growth is very much below trend. We think the UK and Europe are in recession now, and the US will enter recession in 2023. The delayed impact of the rate rises won’t really be felt until spring this year.
