EME Macro/Strategy: inflation – short- and medium-term forecasts

In this publication, we present our updated inflation outlook, extending into the medium term, taking stock of the key drivers so far and highlighting the structural trends that are likely to shape inflation dynamics in the years ahead. Over the medium term, inflation will face upward pressure from rapidly increasing defence spending, on top of the ongoing themes, such as digitalisation, decarbonisation, and deglobalisation. As these shifts take hold, we expect inflation in CEE to continue to exceed the Central Banks’ targets, due to persistent labour shortages and productivity gaps. Inflation in the Euro area and the US is also likely to trend higher compared to past decades. The rapid development and adoption of AI offer a potential remedy, to overcome bottlenecks, but reaching that critical mass of deployment remains in the distant future, and will require significant investments in energy and infrastructure, which will add to inflationary pressure, particularly in the early stages.