The current high inflation will cause significant but temporary credit effects in many countries, as the actions of central banks will help to push inflation lower next year, and ease further in 2024, said Moody’s recently.
Present high inflation rates are unusual; since 1990 central banks in Europe, the US and elsewhere have played a significant role in keeping inflation low, said Colin Ellis, MD-Credit Strategy at Moody's.
"High inflation this year will depress real wages, spending and growth. But we still expect inflation to fall back next year, absent other shocks, consistent with nominal anchors playing a key role,” Ellis noted.
Since the early 1990s, inflation in many major economies has remained relatively low, as countries established inflation-targeting frameworks, typically with an independent central bank setting monetary policy via interest rates or quantitative easing, Moody’s said.
While the experiences of individual countries differ, since then, most major advanced and emerging economies have contained inflation, at least until recently, the credit rating agency added.
“Our modelling shows inflation dynamics in many smaller G-20 leading economies shifted significantly when they started inflation targeting,” Ellis pointed out. “The results of the analysis hold even when allowing for China's rise in the global economy and changes in technology and productivity.”
