Perpetual Flight: Inflation Persists Amid Global Economic Uncertainty

For most of the early 2020s, financial markets discussions were filled with aviation metaphors. Central bankers had raised interest rates to combat rich-world inflation, but the question was whether they could do so without causing a recession. A 'hard landing' would occur if they tightened too much, while a 'soft landing' would be achieved if inflation decreased without an economic downturn.

However, history showed that hard landings were more frequent than soft ones. Central bankers initially dismissed the idea of a 'no-landing' scenario, where both inflation and growth remain high. The Federal Reserve's preferred measure of American inflation never fell to its 2% target, bottoming out at 2.3% in April 2025.

The latest reading for May was 4.1%, with prices rising similarly in Australia (4%), Britain (2.6%), and the euro area (2.8%). Investors and consumers expect above-target inflation to persist. A Bank of America survey found that 54% of fund managers expected 'no landing' for the global economy in the coming 12 months.

The University of Michigan's latest survey of American consumers showed a median respondent expecting inflation of 4.2% over the next year. The rise in energy prices since February has worsened matters, but the bigger problem is that inflation has not been below 2% since early 2021.