WASHINGTON (BLOOMBERG) – Global inflation is finally coming off the boil, even if it is set to remain far too hot for the liking of the world’s central bankers.

As economic growth slows, prices for key raw materials – from oil to copper and wheat – have cooled in recent weeks, taking pressure off the cost of manufactured goods and food. It is also getting cheaper to move those things around as supply chains slowly recover from the pandemic.

After the worst price shock in decades, the speed at which relief arrives will vary, with Europe in particular still struggling. But for the world as a whole, analysts at JPMorgan Chase estimate that consumer price inflation will fall to 5.1 per cent in the second half of this year – roughly half of what it was in the six months to June.

“The inflation fever is breaking,” said Mr Bruce Kasman, the bank’s chief economist.

This does not mean an early return to the subdued inflation that much of the world enjoyed before the twin shocks of Covid-19 and the war in Ukraine – or the end of monetary tightening any time soon.

Fed’s still hiking

Rents and labour-intensive services are likely to keep getting more expensive, with job markets tight and wages on the rise. There are also broader forces at work, from slowing globalisation to lacklustre growth in the labour force, that may keep price pressures bubbling.

The major global central banks, which failed to see the pandemic price shock coming, are set to press ahead with interest rate increases even as headline inflation tops out. The US Federal Reserve, the European Central Bank (ECB) and the Bank of England are all expected to hike rates again in September.

Fed chair Jerome Powell left the door open to another jumbo 75-basis point increase next month, telling fellow central bankers in Jackson Hole last Friday (Aug 26) that a recent ebbing of US inflation fell “far short” of what policymakers wanted to see. The following day, ECB executive board member Isabel Schnabel said “central banks need to act forcefully”.

Some central banks that were quicker off the mark than the Fed to raise rates may take advantage of cooling price pressures to pause their tightening moves.

The Czech National Bank this month left policy unchanged, while the Brazilian central bank is expected to do the same in September. The Reserve Bank of New Zealand may be nearing the end of its aggressive moves, governor Adrian Orr told Bloomberg Television from Jackson Hole.

The soaring cost of living has left politicians as well as central bankers feeling the heat – especially in Europe, where natural gas prices more than seven times higher than a year ago have triggered an energy emergency.

Inflation in the euro area is forecast to accelerate beyond July’s record 8.9 per cent and Citigroup predicts that this could exceed 18 per cent in Britain, in part because a cap on energy bills was just lifted.

All kinds of once-unlikely proposals, from nationalisation to power rationing, have been floated to address the crisis.

The United States, by contrast, will experience the fastest slide in inflation among developed economies, thanks in part to the strength of the dollar, the JPMorgan economists said.

That will not stop the Fed from tightening into restrictive territory. Bloomberg chief US economist Anna Wong expects that the Fed will eventually have to raise rates as high as 5 per cent to rid the US of its inflation problem.