World inflation back to pre-covid levels

The chart below shows the inflation rate for the "Big 8" economies, compared with the percentage of world economies (50 in total) where inflation is above 6%.  The "Big 8" economies are: the USA, the Euro Area, China, Japan, the UK, Brazil and India, which together make up ~70% of world GDP.

World inflation is more or less back at the 1997 to 2020 levels, as is the number of countries with inflation above 4%.  

However, the world discount rate (bank rate) is still way above the 1997-2020 average (lower chart).  The implication is that world interest rates are likely entering a period of sustained decline, which will drive up asset markets (shares and property), as well as sustain growth.  What will stop that decline is a renewed surge in inflation, which obviously can't be ruled out, but given anaemic global growth rates, that does seem unlikely.  At least over the next year or two, though for various reasons, the underlying inflation rate will be higher than it's been over the last 30 years, meaning that world discount rates won't get back down to the 2009-2022 position.

House prices start to fall in Europe, US

 From Yahoo News/Bloomberg

The US and European real estate markets are experiencing a downwards shift in prices as buyers fall away, according to the global chief investment officer of Hines, one of the largest closely held real estate investors in the world.

Prices have fallen by about 5% to 10% compared to a year earlier in some areas, according to David L. Steinbach, with Europe following a trajectory set in the US. “I think we’re in for a rough few months,” he said. “This year is going to be choppy water.”

Businesses are re-examining expansion plans in light of higher costs, Steinbach said in an interview in Abu Dhabi. Rising interest rates are feeding through into higher funding costs, further dampening demand, he added.

“Higher inflation is without a doubt making its way into private real estate,” Steinbach said. “The bidding pools are becoming thinner.”

Real estate can provide a hedge against inflation as some leases are indexed to take account of rising prices. But more than a decade of rock bottom rates and anemic returns in bond markets pushed up prices to record levels in many areas, making them vulnerable to rising borrowing costs.

Houston, Texas-based Hines manages about $90 billion in real estate assets with a presence in 27 countries. Steinbach was in Abu Dhabi meeting some investors in its funds which also partner with it on projects.

The market for office space has been hardest hit in the US, Steinbach said, with demand for rental housing also starting to thin. “Some sponsors are having some trouble getting financing, so that alone is reducing the bidding pool,’ he said.