High inflation has not triggered a wage-price spiral in the advanced economies. Monetary tightening has contained inflation expectations and a continued firm stance will bring down inflation, possibly faster than expected.

There is now broad consensus that headline measures of inflation have peaked and are on the way down, both in the United States and in Europe. However, core inflation remains elevated for central banks to take sufficient comfort, and especially in Europe, where it is still rising. Our central case sees the Fed and the ECB continuing to tighten until the second half of 2023 and maintaining a restrictive policy stance. With fiscal support also expected to wane gradually, could this lead to lower inflation pressures in the second half of 2023 and a faster decline in inflation? We consider some of the factors that could exert downward pressures on inflation relative to our central scenario.

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