Global inflation surprised continuously to the upside in recent months, with median headline consumer price inflation reaching 4.6% on a 12-month basis in October 2021, up from a pandemic-related trough of 1.2% in May 2020 according to the World Bank annual report.
The rebound in global demand and activity since mid-2020, together with supply disruptions and rising food and energy prices, have pushed headline inflation to decade highs across many countries. Core consumer price inflation—excluding food and energy—has also increased globally; in some economies, this has in part reflected rising housing price inflation.
The increase in inflation has led various central banks to partially unwind their accommodative monetary policies. Wages have accelerated in advanced economies, especially in sectors experiencing persistent labor shortages. Financial conditions in advanced economies have remained very accommodative even as some major central banks have begun to reduce long-term asset purchases and signaled plans to raise policy rates.
The emergence of the Omicron variant triggered an episode of substantial market volatility in late 2021; however, equity prices rapidly returned to near historically high levels, boosted by strong corporate earnings.
Meanwhile, house prices surged to record highs, supported by low borrowing costs. Although corporate credit spreads have edged up, they remain compressed even for riskier borrowers. Government bond yields remained subdued at the turn of the year, having pared back sizable increases since mid2021.
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