With the war in Ukraine driving up energy and food prices, labor shortages leading to high wage pressure, and China’s tougher approach to disrupting supply chains By Covid, central banks began aggressively tightening monetary policy to bring down inflation “almost regardless of the economic impact,” said Luc de la Durantaye of CIBC.

As a result, although a global recession is not his base case scenario, he said the likelihood has increased. The The silver lining, he said, is that “the sooner you can get inflation under control, the less damage you will do to economic activity in the long run.”

The most likely scenario is that central banks generate a “very significant economic slowdown” through rate hikes, which de la Durantaye said could help “reanchor” inflation expectations. Inflation expectations have returned to central banks’ targets, he said, meaning they will still have to make their hikes, but they won’t necessarily need to do more than what has already been done. been announced in the market.

In this scenario, inflation peaks later this year and begins to decline in the first half of 2023.

That said, the risk of recession remains, although certain factors make it difficult to predict.

Labor demand is slowing, de la Durantaye said, but it remains tight. “You still have a two-to-one ratio in terms of job openings to available workers,” he said.

There is also the standoff in Ukraine, which is putting pressure on food and energy prices. “What Russia does in terms of supplying oil and gas to Europe could determine whether Europe goes into recession,” he said.

Ongoing lockdowns in China and the implications for supply chains also remain uncertain, de la Durantaye said.

“There are elements that continue to force central banks to raise interest rates, to create a significant slowdown to manage inflation, and that will certainly continue to be priced into financial markets,” he said. he declared.

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