GLOBAL INFLATION
1. OECD: Headline Inflation Eases to 4.0% in May
The OECD reported that headline inflation across its member countries fell to 4.0% in May, down from 4.2% in April—the lowest point since mid-2021. However, core inflation, which excludes food and energy, remains elevated at 4.4% euronews.com+4aa.com.tr+4economictimes.indiatimes.com+4oecd.org+1aa.com.tr+1.
Details: Energy prices have dropped to −0.3% year-over-year, while food inflation remains high at 4.6%. Though overall inflation is cooling, the cumulative price increase since late 2019 is still nearly 40% oecd.org+1aa.com.tr+1.
Implication: Advanced economies—particularly G7 nations—show inflation steady at ~2.4%, but global inflation remains historically high.
2. BIS Raises Alarm on Inflation Expectations
The Bank for International Settlements (BIS) warned that households across 29 economies expect inflation at around 8%, significantly above actual levels (~2.4%).
Risk: Elevated expectations risk a wage-price spiral, where labor demands push prices higher—challenging central banks aiming to reduce inflation ft.com.
3. ECB Signals Cautious Pause Over Trade Uncertainty
During its June meeting, the European Central Bank (ECB) issued its eighth rate cut this past year but signaled a pause. Policymakers cited rising global trade uncertainty—especially erratic U.S. tariffs—as a threat to export-driven inflation dynamics reuters.com+1reddit.com+1.
They highlight the strong euro, lower energy costs, and cheap Chinese imports are now balancing inflation downward.
Forecast: Only one more rate cut is expected in 2025, with possible rate increases arriving in 2026 reuters.com+2reuters.com+2reddit.com+2.
4. Fed Delays Rate Cuts Amid Tariff Pressures
Fed Chair Jerome Powell attributed the delay in rate cuts to inflationary pressures from new U.S. tariffs—which have complicated the inflation outlook and weakened the case for easing .
Markets had anticipated cuts later in the year, but sticky core inflation and trade policy volatility mean the Fed will stay data-dependent theguardian.com+3businessinsider.com+3reddit.com+3.
Markets now expect a September 2025 rate cut rather than July marketwatch.com.
5. Fed-Hike Pressure and Global Support for Powell
Despite heavy political pressure—including criticism from former President Trump—Powell and other central bankers (including ECB’s Lagarde) are defending a cautious, independent stance against premature easing amid tariff-induced inflation risks oecd.org+8barrons.com+8theguardian.com+8.
6. Drag on Inflation Forecasted in OECD Economic Outlook
The OECD’s Economic Outlook warns that persistent tariff escalation and trade fragmentation may hinder disinflation efforts and could increase inflation even as growth slows oecd.org+1oecd-ilibrary.org+1.
Growth outlook: GDP slowdowns in major economies plus cautious consumer behavior.
Inflation outlook: 4.2% for 2025 and 3.2% for 2026—higher than previous projections reddit.com+4oecd.org+4euronews.com+4.
7. ECB President Lagarde: Inflation Unpredictability Rising
At the ECB’s central banking forum in Sintra, Christine Lagarde emphasized that frequent global shocks—such as pandemics, wars, and tariffs—are making inflation less predictable. She urged integrating scenario-based forecasting to better reflect these risks barrons.com+2apnews.com+2reuters.com+2.
8. Fed’s Monetary Strategy Under Review
The Fed is reevaluating its Flexible Average Inflation Targeting (FAIT) framework—moving to better link communication tools like real-time rate projections to actual policy outcomes. The updated strategy is expected by late summer 2025 reddit.com+7ft.com+7barrons.com+7.
Purpose: Enhance transparency and manage sticky core inflation with more predictable forward guidance.
9. Dollar Weakness Reflects Shifting Inflation Dynamics
The U.S. dollar’s 10% drop this year, its worst start since 1973, suggests market concerns over broader inflation and U.S. policy instability.
A strong euro is emerging as a global hedge, signaling changing confidence trends economictimes.indiatimes.com+2ft.com+2theguardian.com+2.
10. India Benefits from Benign Domestic Inflation
A recent RBI-led report highlights that India's benign inflation cushions it from global tariff-driven shocks. This resilience supports continued domestic consumption and stable growth economictimes.indiatimes.com.
Conclusion: While global inflation shows persistent pressures, emerging markets like India maintain economic stability.