Inflation expectations in developed economies are currently subdued, despite upward pressure on energy prices. This suggests that markets and consumers generally believe that recent price increases are temporary and will not lead to sustained inflation.

Factors Contributing to Subdued Expectations

• Central Bank Credibility: The perceived commitment of central banks to price stability plays a significant role.
• Global Supply Chains: Increased efficiency in global supply chains has helped to keep prices in check.
• Demographic Trends: Aging populations in many developed economies may be contributing to lower demand and, consequently, lower inflation.

Central Bank Response

Central banks are closely monitoring inflation expectations and are prepared to take action if they begin to rise significantly. This could involve raising interest rates or reducing asset purchases.

Potential Risks

While inflation expectations are currently well-anchored, there are several risks that could cause them to rise:

• Persistent Supply Chain Disruptions: Continued disruptions could lead to higher prices for goods and services.
• Wage Pressures: Rising wages could lead to a wage-price spiral.
• Geopolitical Instability: Geopolitical events could disrupt energy supplies and lead to higher prices.

Overall, the outlook for inflation expectations in developed economies remains uncertain. However, the current environment suggests that inflation is likely to remain subdued in the near term.