The global economy has to deal with higher structural inflation forces driven by aspects such as geopolitics (i.e. new tariffs, near-/on-shoring), energy transition, demographics or elevated fiscal spending. However, over the next 12 months, the US inflation could tame somewhat towards 2.5% as service inflation is expected to cool.
This current disinflation trend is expected to be driven primarily by a decline in service prices, including shelter inflation, which is the largest component of the CPI. Nonetheless, inflation is unlikely to reach the FED’s target level of 2%.
Given the FED’s dual mandate of price stability and full employment, there is now scope to reduce Fed rates to around 4% over the next 12 months or 3.5% in case the US-employment market is going to cool meaningfully ahead of us.
