The course of disinflation never does run smooth. At the end of last year, futures markets had priced in six interest rate cuts for the US in 2024. My own expectations had also become quite optimistic. Yet now, after three successive quarters of stubbornly high inflation, US Federal Reserve chair Jay Powell warns that it is likely to take “l(fā)onger than expected” for inflation to return to the central bank’s 2 per cent target and justify cuts to interest rates. Market forecasts for rate cuts have duly been transformed. Some suggest they will be postponed to December, partly to avoid cuts before the presidential elections in November. Yet no similar rethinking has emerged in the eurozone: the first cut is still expected to be made in June.

Lessons come from this story. One is the inherent uncertainty of any disinflationary process. Another is the difficulty of reading the data: in this case, a part of the explanation for the robust recent figures for “core” consumer price inflation is “Owners’ Equivalent Rent of Residences”. Yet this is just an imputed figure. It is not clear, as yet, that any fundamental change in the US disinflationary process has occurred. A final lesson is that, while there have clearly been some common factors in the inflationary process across the Atlantic, the US and eurozone economies have been different: the former is far more dynamic.

The latest World Economic Outlook from the IMF provides an illuminating quantitative comparison of the inflationary processes in the US and eurozone, derived from annualised three-month average inflation. Labour market tightness has been far more significant in driving inflation in the US than in the eurozone and, crucially, this continues to be the case. At the same time, “pass-through” effects from higher world prices, notably of energy, were far greater in the eurozone. This has made eurozone inflation more credibly “temporary” than that of the US. This has implications for monetary policy. (See charts.)