Global inflation turning point: what the numbers say
Over the last year, inflation has stopped moving in lockstep across the world. Headline rates—those that households feel most directly—have eased in many advanced economies, while the underlying pace of price rises, captured by core measures that strip out volatile food and energy, has proven more stubborn. This note pulls together the latest data, market signals and the key forces shaping near-term outcomes. All figures are annualized unless otherwise noted.
Recent picture: headline down, core holding up
– Across a 20-country advanced-economy sample, the median headline CPI fell from 4.1% to 3.0% year-on-year between Q4 2024 and Q1 2026, a drop of 1.1 percentage points. By contrast, median core CPI edged down only from 3.6% to 3.4% (a 0.2 pp decline).
– The gap between headline and core narrowed from 0.5 pp to essentially zero, highlighting that much of the recent disinflation reflects swings in energy and food prices rather than a broad-based cooling.
– Dispersion is large: the interquartile range for headline CPI sits around 2.1 pp, so country-by-country stories still matter a great deal for aggregate readings.
What markets are saying
– Bond markets tightened noticeably from January 2025 to February 2026. G7 10‑year yields averaged 3.85% in January 2025 and fell to about 3.10% by February 2026 (roughly a 75 basis point decline).
– Five‑year breakeven inflation expectations moved down from a median 2.65% to 2.25%, while nominal yields fell faster than breakevens. That left median real yields roughly 35 basis points higher, around 0.85%.
– Our valuation work suggests the compression in nominal yields added about 0.6 percentage points to equity valuation multiples in late 2025.
– Overall, investors have favored duration and high-quality assets, but the mixed messages between headline and core inflation have produced uneven repricing across bonds, currencies and equities.
Monetary policy: easing with limits
– Between mid‑2025 and early 2026 the sample’s central banks enacted 18 rate cuts and seven pauses, producing a GDP‑weighted policy rate decline of about 60 basis points.
– Balance-sheet activity reversed some prior tightening: central bank assets expanded by roughly 1.2% of GDP in 2025 after earlier contractions, driven by renewed purchases in two major jurisdictions.
– Yet median core inflation remains elevated at 3.4% against a typical 2.0% target in the sample, which explains why policymakers have been cautious—reductions in headline inflation have not yet given them the clear runway many had hoped for.
Drivers to watch: the four elasticities
A simple, data‑driven decomposition identifies four variables that explain most of 12‑month inflation variation across our sample: energy prices, wage growth, import prices (via exchange rates) and service-sector rents.
– Energy: a 10% fall in energy prices tends to shave roughly 0.45 pp off headline CPI within six to nine months.
– Wages: a one percentage point acceleration in wage growth lifts core CPI by about 0.25 pp over a year.
– Exchange rates: a 5% appreciation typically reduces import-price contributions by ~0.3 pp, though pass‑through depends on pricing behaviour and supply conditions.
– Rents and services: smaller in any single shock but persistent, these push up shelter components and keep core inflation elevated over time.
These elasticities come with sampling uncertainty (standard errors in the 15–25% range) and differing lags: energy works quickly, wages and rents more slowly.
Historical precedents and market behavior
Looking at 12 historical episodes since 1990 where headline inflation fell by more than 1 pp while core stayed flat, a pattern emerges:
– Median equity total returns were +6.3% over the following three months.
– Credit spreads tightened by a median 22 basis points.
– Safe‑haven currencies strengthened in eight of those 12 episodes, with a median appreciation of about 1.8% versus emerging-market currency baskets.
When real yields rose alongside headline disinflation, gains in nominal growth expectations were more muted—illustrating how the path of real rates matters for asset returns.
Sector implications
– Services‑intensive sectors (consumer services, housing-related industries) feel core inflation most directly; persistent wages and rents translate into higher input costs and stickier service prices.
– Energy‑intensive sectors benefit from commodity disinflation through lower input costs and improved margin prospects, especially where firms lack pricing power.
– Financials and long‑duration issuers see mixed effects: lower nominal yields help valuations, but higher real yields blunt some of that benefit.
Outlook and scenarios
Our baseline projects a median headline CPI of 3.2% y/y and core CPI of 3.3% y/y over the next 12 months—the headline‑core gap narrowing to about 0.1 pp. We attach asymmetric probabilities to alternative outcomes:
– Downside (20%): a further 15% fall in energy and a 0.5 pp easing in wage growth would push headline to ~2.6% and core to ~2.9%.
– Upside (25%): persistent +0.8 pp wage pressure and stronger services inflation would keep headline near 3.6% and core around 3.9%.
The near‑term balance hinges on incoming energy data, wage prints and exchange‑rate moves. If core inflation starts to drift toward target, policymakers will have more scope to ease; if wages and rents remain firm, the room for accommodation will be limited. Markets have begun to price relief in some places, yet higher real yields and persistent core components mean policymakers are unlikely to lower their guard quickly. Watch energy, wages, import prices and rents—those four items will determine whether headline moves become a durable disinflation story or a temporary reprieve. No investment advice is given here; these are data‑driven observations to help interpret what comes next.