According to a report by KPMG titled “Macroeconomics Review H1 2023 & Outlook for H2 2023,” the multinational firm has projected that inflation will rise to about 30% by December 2023. This forecast indicates a significant increase in inflationary pressures, which could have various implications for the economy and consumers.
Factors contributing to rising inflation:
Global energy prices: The report highlights that global energy prices have returned to levels last seen prior to the invasion of Ukraine. This, combined with easing commodity and food prices, has put further downward pressure on inflation for the rest of 2023.
Domestic challenges and geopolitical tensions: Major economies, including the UK and USA, are facing their own domestic pressures, which are delaying any hopes of improving market conditions and a drop in inflation. The complex economic environment in each country, region, and territory is placing unprecedented pressure on central banks, with concerns that core inflation could remain sticky and price rises could become entrenched.
Implications of high inflation:
Consumer purchasing power: High inflation erodes the purchasing power of consumers as the cost of goods and services increases. This can lead to a decrease in consumer spending and a potential slowdown in economic growth.
Central bank response: Central banks may respond to high inflation by implementing tighter monetary policies, such as raising interest rates, to curb inflationary pressures. However, these measures can also have implications for borrowing costs and investment.
Business operations:
High inflation can impact businesses by increasing their input costs, such as raw materials and labor. This can lead to reduced profit margins and potentially affect employment levels.