World inflation: trend in 2022 and 2023

Mexico‘s Ministry of Finance and Public Credit (SHCP) showed the world and Mexico’s inflation trend and gave its outlook on the matter.

One version of its outlook comprises the following content:

During the last three months of 2022, a decrease in inflationary pressures was observed that seems to be signaling a change in trend in price indexes.

For example, in the United States, December inflation was 6.5% (Bureau of Labor Statistics), 2.6 percentage points (pp) below the 2022 peak.

Likewise, in Europe, December inflation was 9.2% (Eurostat, 2023), 1.4 pp below the observed 2022 peak.

One of the main factors that may explain this change is the lower price of oil.

World inflation

Thus, the fourth quarter average price of West Texas Intermediate (WTI) was 10.6% lower than the price recorded during the third quarter of the year.

As a result, energy inflation in the Organization for Economic Cooperation and Development (OECD) countries in December was 22.8 pp below its highest level recorded in June (41.2 vs. 18.4 percent).

In the case of Mexico, energy inflation in December was 3.0 percent, which implied a 5.2 pp decrease with respect to the peak recorded in August.

With this, Mexico registered the second lowest energy inflation among OECD countries during that month.

Thanks to the fuel stimuli implemented, Mexico remained among the three countries with the lowest energy inflation in the OECD throughout 2022.

By 2023, inflation is expected to show a downward trend.

In this regard, the forecasts of the International Monetary Fund (IMF) and the World Bank (WB) anticipate that global inflation will decrease throughout 2023, although it will remain above the target levels of the different central banks and its decline will be gradual, so it is not ruled out that interest rate increases will be observed throughout the year.

Outlook

Although economic dynamism is expected to lose momentum during 2023, factors such as lower inflationary pressures, the strength of the U.S. labor market and the better-than-expected performance of the European and Chinese economies observed recently, suggest that, should a recession occur, it could be short and shallow.

In this context, it is expected that the Mexican economy will be affected by the lower global dynamism, especially in the US economy, although, as in the international context, it is difficult to anticipate the size of the deceleration; likewise, it is also expected that lower inflation will be observed throughout 2023.

Given the above, in the face of a possible increase in uncertainty or risk perception, the room for maneuver of public policies would be determined by the strength of public finances; therefore, the effort to maintain stability in the country’s financial indicators is the necessary condition to face the international scenario that is anticipated for 2023.