GlobalData raises forecast for 2022 US inflation rate to 7.1% from 4.9% in light of increasing inflation rates, policy tightening; federal rate hike also likely to impact emerging economies such as India, Brazil and South Korea

May 12, 2022 (press release) –

Following the recent release of the US’s inflation data for April 2022, by the US Bureau of Labor Statistics;

Bindi Patel, Economic Research Analyst at GlobalData, a leading data and analytics company, offers her view:

“GlobalData has revised its 2022 inflation rate forecast for the US upward to 7.1% in May 2022 from 4.9% in February 2022 in light of increasing inflation rates and the policy rate hike by the Federal Reserves.

“The US inflation rate rose to 8.5% in March 2022. As a result, the Federal Open Market Committee (FOMC) raised its key interest rates by 50 basis points on May 4, 2022, the biggest increase in over two decades. While the inflation rate declined slightly in April 2022, it remained at an elevated level of 8.3%. Consequently, GlobalData expects a further rate hike by the Federal Reserves in the coming months to tame the inflation rate.

“Due to the soaring inflation levels in the US, there has been a severe financial strain across households in terms of purchasing power. While the US government implemented various stimulus measures to mitigate the impact of the pandemic on the US economy, an early intervention of the Federal reserve with respect to monetary tightening and asset reduction programmes, may hinder the economic growth prospects. The impact of these hikes has already been felt in the stock market with the S&P 500 index contracting by 17.4% on a year-to-date basis and by 3.1% on an annual basis, as of May 12, 2022. GlobalData projects the US economy to grow by 3.1% in 2022, a 0.5 basis points cut over its last projections.

“The federal rate hike is also likely to impact emerging economies such as India, Brazil, and South Korea since the dollar outflows accelerate the bond yield in the US market, thereby offering attractive returns and a safer investment option. With the US Federal Reserve beginning to announce policy rate hikes from March 2022 onwards, the stock markets across major emerging economies including India, Brazil, and South Korea, fell by 10%, 7.8% and 9.6% respectively between February 1, 2022, and May 12, 2022. Moreover, with the US dollar strengthening, the emerging economies will experience a depreciation in the local currency.

“The outbreak of the Russia-Ukraine war has triggered global inflation rates at new levels. If the European Union decides to stop importing Russian gas, the gas prices in the US are likely to accelerate even further. Moreover, China’s COVID-19 related lockdowns have exacerbated the supply chain problems. If inflation continues to remain at elevated levels, the major impacts will be felt across emerging and developing economies, as they would not only experience a devaluation in their currency, due to the strengthening of the US dollar, but would also worsen their state of inflation.”