Central banks will win inflation fight: Moody’s

While inflation has outpaced expectations and sparked concerns about the global economy, central banks should win the battle against rising prices by 2023, says Moody’ Investors Service.

In a new report, the rating agency said elevated inflation will negatively impact credit conditions in many countries in the short term, but the world’s central banks will ultimately succeed in reducing inflation next year, with further declines in 2024.

“High inflation this year will depress real wages, spending and growth. But we still expect inflation to fall back next year, absent other shocks, consistent with nominal anchors playing a key role,” said Colin Ellis, managing director of credit strategy at Moody’s, in a release.

The rating agency indicated that its expectations are rooted in the success central banks have had in keeping inflation low for several decades now.

Indeed, Ellis noted that the current environment of high inflation is unusual, since the central banks in Europe, the U.S. and elsewhere have largely succeeded in subduing inflation since the 1990s.

“Our modelling shows inflation dynamics in many smaller G-20 leading economies shifted significantly when they started inflation targeting,” Moody’s said.

“The results of the analysis hold even when allowing for China’s rise in the global economy and changes in technology and productivity,” it added.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.