Though price growth deceleration has started to happen in some economies, there still remains volatility in global energy markets and entrenched core inflation suggests it will remain front and centre in 2023 as well, the latest report by UK-based economics consultancy company CEBR (Centre for Economics and Business Research) said in its latest report.

In 2022, the global economy experienced an inflationary shock of a magnitude not seen since the start of the 1970s. "The question for the year ahead is how painful measures to rein in inflation will be for the world economy and if any potential economic contractions can be kept short and shallow or whether a more prolonged reduction in demand will be required to get price growth back to more comfortable levels," the CEBR report says.

Inflation skyrocketed with Russia's invasion of Ukraine in February 2022, though supply-chain disruptions, a lack of input materials and shifting consumer demand patterns brought about by the pandemic had already caused price pressures in a number of sectors and economies in 2021, CEBR report adds. After the war broke out, the global oil prices touched $120 per barrel (Brent) before falling back again to around $90 in Q4 2022.

Since both Russia and Ukraine are important producers and exporters of wheat and other agricultural products, it further stoked inflationary pressures in global food prices, the report adds. Some respite from inflation can be seen, however easing supply-chain pressures, falling shipping rates and lower commodity prices shows inflation rates will fall back over the course of 2023, says the British consultancy.

The battle against inflation, however, is far from over. "The battle against inflation is not won yet. The fact that core inflation rates, which strip out volatile food and energy prices, have crept up across developed economies and are several times above central banks’ inflation targets confirms that inflationary pressures have indeed become more entrenched in the global economy, which could lead inflation expectations to become unanchored."

In 2023 as well, the central banks are expected to stick to their guns, despite the economic costs. This could lead to relatively sizeable asset price corrections. "Following a decade of record-low interest rates, the sharp pace of monetary tightening has started to weigh on house prices in the US and the UK. Meanwhile, global tech stocks have taken a beating in 2022, as have crypto assets, as interest rates increased and future earnings potential were discounted more heavily." 

The consultancy has said it expects 2023 to be a challenging year for markets. The downside risks are prevalent in the housing market, where higher borrowing costs are compounded by falling real incomes and an anticipated uptick in unemployment over the year.

As the year comes to an end, the world GDP in USD rose above $100 trillion for the first time ever in 2022. It is projected to double and touch the $207-trillion mark by 2037.

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