Key Points

  • There have been recent signs that US inflation isn’t as well behaved as we had hoped at the end of last year. This has dashed expectations for an interest-rate cut in Q1.
  • Can the high-inflation era of the 1970s provide lessons for what’s happening today? Perhaps, if we understand that period as a series of energy and other shocks over the years.
  • Reasons for why inflation may flare up again include disruption to shipping in the Red Sea and tight labour markets in developed economies.
  • Growth trajectories in major economies have been diverging, but this will reverse in 2024 as the gap between leaders and laggards starts to close.
  • Interest rates in developed markets will start falling this year, except in Japan. Longer-term rates will eventually settle at lower levels than many people think, once Covid-era distortions fade and long-term trends reassert themselves.