Fitch projects global services inflation to persist at ‘sticky’ level

5/23/2024 4:27:13 AM

(MENAFN) Fitch Ratings announced on Wednesday its projection that global services inflation will persist at a "sticky" level, potentially impeding the pace of interest rate reductions worldwide.

This assessment suggests that in spite of efforts to stimulate economic growth through monetary policy adjustments, central banks may face challenges in significantly lowering interest rates due to the persistent pressures exerted by services inflation on overall price levels.

"Inflation has slowed rapidly, helped by a reversal of food and energy price inflation," the rating agency stated in a report. "Global inflation rates are falling, but their descent is being hampered by stubborn services sector price growth."

Fitch Ratings additionally highlighted that while core goods inflation, excluding food and energy prices, has decreased in numerous countries, there remains a necessity for a more pronounced decline in services inflation.

"Services industries are more labor-intensive than the goods sector, and tight labor markets and high wage inflation are having a bigger impact," the statement noted.

"Productivity-adjusted wages, or unit labor costs, in the services sector are still growing at well above pre-pandemic rates in the US and Europe," it further mentioned.

Fitch pointed out that housing costs are playing a significant role in driving high services inflation, particularly in developed economies.

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