The best way to beat inflation

Central banks and governments are making progress in bringing down inflation – even, it seems, in the UK. But the battle is not over yet, and the long-term consequences remain to be seen.

Inflation is easing across a number of key economies. In the US, inflation rate dropped to 3 per cent in June, the lowest rate since March 2021, and growth is picking up strongly too, reaching 2.6 per cent year-on-year in Q2.

The UK finally saw some relief with the annual Consumer Price Index (CPI) rate falling faster than market expectations, to 7.9 per cent in June. Other G7 economies are performing less well, but should all see positive growth in 2024.

However, serious threats remain. Russia’s withdrawal from the Black Sea grain agreement, combined with climate-related extreme weather events, threatens a renewed surge in grain prices.

Despite the adjustments made by European gas consumers, a severe winter could create new strains in the European gas market if Russia’s production cuts continue. And global moves to strengthen economic security seem most likely to be inflationary.

On the other hand, China’s weak economic performance will reduce global demand. Meanwhile, the G20 Summit on 9-10 September seems unlikely to resolve the fundamental problems in global economic governance.

Against this background, our panel of experts discuss three main questions:

How confident can we be that the battle against inflation has been won? What risks remain?

What will the legacy of the fight against inflation be – in political, economic, and institutional terms?

What have we learnt about the best way to maintain price stability and prevent future inflation shocks in today’s new economic paradigm with increasing climate risks, rapid technological change, and heightened geopolitical tensions?