Extract from our "Falling Inflation to Bring Down the Dollar in 2023" research paper, published on the 4 April, 2023. Register for a free trial* to access the full paper.

We expect US inflation to continue to decline at roughly the same pace as it rose in 2021 and the first half of 2022: historically, there has been scant evidence of downside stickiness in inflation, even if there is evidence of downside price and wage level stickiness. Goods price inflation in the US, in fact, could turn negative later this year. Inflation in Europe will also likely decline sharply this year, albeit with a six-month lag to the US.

  1. Historically, inflation in major economies has been more global than local, i.e., global factors have been dominant, with globalisation in trade. The current stark divergence in inflation rates around the world seems to us to be an aberration rather than a new normal. We expect to see a general reversion back to the old normal in inflation.
  2. China’s recovery will likely see aggregate supply normalisation lead aggregate demand normalisation, suggesting in turn that inflation in China will stay low as China bounces back toward its trend growth.
  3. The Fed and the ECB are likely to be very close, if not already past, their peak hawkishness: the next actions will likely be rate cuts, which may take place later this year.
  4. The US dollar is vulnerable to substantial (10-15 percent) depreciation in the coming 4-6 quarters


The full report contains the following sections:

  • Chinese PPI is negative and will weigh on US goods prices
  • Exceptional divergences in inflation likely won’t persist
  • The Fed is likely done with rate hikes
  • This is a set up for dollar depreciation
  • Bottom line

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