Moderating inflation

Another important investment theme put forward in our Q3 house-view is moderating inflation. Inflation has indeed moderated significantly, providing relief to consumers and businesses alike, but remains above central bank targets in both the U.S. and Europe. In the U.S., core PCE inflation stands around 2.6%, while the CPI is at 3.4%. The ECB, despite the recent rate cut, projects inflation averaging 2.5% in 2024, 2.2% in 2025, slightly above its 2% target. While tighter monetary policies, easing supply chain disruptions, and moderating commodity prices have helped bring inflation down, other factors such as wage growth and robust demand continue to exert upward pressure on prices. It is early to declare victory over inflation, as underlying inflationary pressures persist, central banks continue to watch closely for signs of second-round effects and the potential for inflation to become entrenched. Indeed, the last mile is the hardest.