Evidence is mounting that many of the drivers of last year’s dramatic rise in inflation are dissipating. European gas prices are now at levels last seen before Russia’s invasion of Ukraine in late February. The cost of shipping a 40ft steel box from Shanghai to Long Beach has crashed from around $8,300 this time last year to $1,500. Used car prices have gone into reverse, even in the UK where they once commanded a higher value than new ones.
Does this mean less aggression from the world’s central banks in 2023? Not immediately. After pumping too much stimulus into the economy during the early days of the pandemic and then failing to spot the stickiness of the surge in prices until far too late, rate-setters will start the year as they ended it — desperate to restore credibility by talking tough about fighting inflation.
This hawkish rhetoric is not just about rebuilding trust. While headline inflation rates are tumbling as the base effects of last year’s sharp rise in energy and food prices fall out of indices, price pressures have not entirely faded.