This month’s Global Talent Update discusses expected inflation in the U.K. to begin softening rapidly from the middle of 2023; Japan’s Subaru Corp recently slashed its annual output target by nearly 10%; several Latin American countries are now experiencing inflation rates not seen in decades.
Bank of England Governor Andrew Bailey has urged workers and employers to consider the expected sharp fall in inflation this year when negotiating pay settlements, as reported by CNBC. U.K. inflation came in at an annual 10.5% in December, marking a second consecutive month of declines. The soaring cost of living in the country has led to widespread industrial action among public sector workers, whose average pay increases drastically lag those of the private sector.
The Bank last week hiked interest rates by 50 basis points, taking the main Bank rate to 4%, as it looks to drag inflation back towards its 2% target. Bailey told a parliamentary committee that the continued tightening reflected the Monetary Policy Committee’s concerns about the persistence of inflation, and the need to see more evidence of a loosening in the labor market.
The Bank expects inflation to begin softening rapidly from the middle of 2023 and reach around 4% by the end of the year, as a result of base effects, a steep decline in wholesale energy prices, a sharp drop in the price of imported goods and falling demand because of squeezed household incomes.
Asked about the potential inflationary impacts of negotiated pay raises for public sector workers, the governor said it would depend on how these wage increases were funded — through borrowing or taxes.
Japan’s Subaru Corp recently slashed its annual output target by nearly 10% amid ongoing fallout from a semiconductor shortage that continues to hamper automakers around the world. According to a report by Reuters, the carmaker said the shortages were most acute among parts for immediate delivery in the spot market and it expected the lack of supply to last at most until around June before recovering. It now expects to produce 880,000 vehicles this fiscal year through March, down 9.3% from a previous forecast of 970,000 units. Subaru, in which Toyota Motor Corp owns a 20% stake, hopes to reach global production of 1 million vehicles next financial year.
Subaru lowered its annual global sales forecast by 5.4% to 870,000 vehicles from its previous forecast, though that still marked an 18.5% rise compared to the 2022 financial year. Most of the expected decline in global sales is in the U.S. market, where it sells two-thirds of its cars, including the popular Forester and Outback models.
Economic prospects for Latin America (Latam) for 2023 are less rosy than they were in 2022, as several headwinds cloud the regional outlook. One of these factors is a drop in commodity prices, which is usually a harbinger of economic hardship in Latam because commodities are the region’s main exports and constitute a crucial source for incoming international reserves and government revenue.
According to a detailed report from Deloitte, the expected decline in prices may spell the end of the commodity-led boom in Latam, but it could also help moderate inflation. The war in Ukraine, by creating a shortage of key agricultural inputs, has triggered food inflation the world over, while the economic reopening after the COVID-19 crisis signaled the beginning of strains in global production networks, manifested by delivery delays and expensive maritime transport costs. As a result, several Latam countries are now experiencing inflation rates not seen in decades.
However, these challenges have somewhat subsided in recent months: Commodity prices, as discussed above, have come down substantially. Supply chain disruptions, too, are easing, as various economic indicators show. Despite these recent trends, price pressures are proving quite stubborn, and inflation has remained high worldwide. It is estimated to have peaked in late 2022 but will remain elevated for longer than previously anticipated.
Read more at Latin America economic outlook | Deloitte Insights.