The European Central Bank has warned that inflation is set to remain "undesirably high" for some time to come, but there are indications that inflation is currently peaking, or has already peaked around the world.
Figures from Germany this morning show that inflation came in at 7.4% year-on-year, compared to 8.1% last year.
"There is some evidence that the more recent inflation trends are on the turn," said John O’Toole, Global Head of Multi-Asset Fund Solutions at Amundi.
"Our expectation is that US inflation might be just under 8% this year and it will go to just below 4% next year.
"Similarly in the Eurozone, we expect it to go from about 7.5% this year, to 4% next year," he said speaking on Morning Ireland.
But Mr O’Toole said inflation will settle well above Central Bank targets.
"It is likely to be sticky and persistent – and that is a real problem," he said.
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Rising inflation is leading to downward revisions on economic growth, as Mr O’Toole explained.
"We do see US growth falling from about 6% last year to below 2% in 2023. Eurozone growth similarly, from about 5% in 2021 down to just 1% in 2023," he said.
"So there may be a short, shallow, technical recession in the Eurozone," he added.
In terms of the outlook for the Irish economy, Mr O'Toole said our starting point is stronger than many of our Eurozone counterparts.
"We have a higher growth rate - almost double the Eurozone average, we have a lower unemployment rate - below 5% versus an average of around 7%, we have a balanced Government budget versus deficits across most of Europe, we have healthier debt to GDP, a current account surplus, and we have healthier demographics for the longer term," he said.
"But that is not to say that we are not going to face difficulties, we are already facing inflation difficulties – but our starting point is a lot better.
"Once the psychology of inflation takes hold, it is very difficult to put that genie back in the bottle," he added.
