Abbey Road Investment Views, May. 2023
Inflation should fall to 2-3% next year
• Near-term core inflation will stay sticky
• But next year inflation should fall fast
• Bond investors may be well-placed to benefit
• Focus – Inflation-beating income investments
• Gold prices are knocking on highs (page 3)
Core inflation is slowly coming down but is still well above the 2% target. The latest figures are 4.6% for the US (PCE index, the Fed’s preferred measure), 4.7% in the eurozone and 6.2% in the UK. Central banks are likely to keep rates high for the next few months. The Fed raised rates by 25 bp to 5.0%-5.25% on May 3rd and signaled they may pause. In our view, that
pause will last until 2024 – we are already in May after all and it will take time for prices and wages to come down enough for the Fed to be satisfied. The ECB raised rates by 25 bp to
3.25% on May 4th and the BoE may raise rates on May 11th.
Download the full Investment Views of the month below.