Watch/Listen

60 seconds on US growth and inflation in 2017

A strong US consumer means that US growth looks robust, but Keith Wade thinks rising inflation could pose a headwind towards the end of the year.

03/03/2017

Keith Wade

Keith Wade

Chief Economist & Strategist

The world economy has entered 2017 with quite a bit of momentum. Most business surveys are quite strong, and global growth has picked up fairly substantially over the past year or so.

This is encouraging, but we’re also seeing inflation pick up. Consumer prices are rising at just over 2% in most economies, and will probably increase a bit further. This is particularly true here in the UK, where the falling pound means inflation will probably top 3% later this year.

It’s this rise in inflation that may slow down the recovery in US activity. Rising inflation will cut into real wage growth, and that will slow down consumer spending. So while we think growth is good at the moment, we think it will slow down later on. The only way that will change is if we see wages begin to accelerate.

If wages accelerated, it would mean that consumers could shrug off the increase in inflation and keep spending. So far, we don’t see much sign of that. We think wages are likely to remain quite subdued.

Our outlook is for US growth to be quite good in the near term, slow down a bit further out, and for inflation to eventually subside.

Important information: The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This article is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results, prices of shares and the income from them may fall as well as rise and investors may not get back the amount originally invested. Issued by Schroder Investment Management Limited, 31 Gresham Street, London EC2V 7QA, which is authorised and regulated by the Financial Conduct Authority. For your security, communications may be taped or monitored.