www.swissre.com Open in urlscan Pro
2606:4700::6812:8d9  Public Scan

Form analysis
1 forms found in the DOM

GET /institute/search-page.html

<form action="/institute/search-page.html" class="Search--form" data-search-el="form" method="get" role="search">
  <span class="Icon Search--form--icon" data-icon="search"></span>
  <label class="visuallyhidden" for="u20">Enter search term</label>
  <span aria-hidden="true" class="Search--form--placeholderPolyfill" data-search-el="placeholder">Type to search entire website</span>
  <input autocomplete="off" class="Search--form--input" data-label="item.replace(this.el.value, &quot;<strong class=t-bold>&quot; + this.el.value + &quot;</strong>&quot;)" data-search-el="autocomplete" data-async-values="/institute/search-page.json"
    data-values="null" id="u20" name="searchterm" placeholder="Type to search entire website" type="text">
  <button class="Search--submit" data-search-el="submit" type="submit">
    <span class="visuallyhidden">submit</span> search </button>
  <button class="Search--close" data-flyout-el="close" type="reset">
    <span class="visuallyhidden">Close Search</span>
    <span class="Icon" data-icon="close"></span>
  </button>
</form>

Text Content

Navigation on swissre.com


QUICK NAVIGATION

 * Content
 * Homepage
 * Business Unit Navigation
 * Navigation
 * Search


COMPANY UNIT NAVIGATION

Swiss Re Institute(Click to open Universal Navigation) Close Universal
Navigation
 * Swiss Re Group
 * Swiss Re Institute
 * Reinsurance
 * Corporate Solutions
 * Swiss Re Foundation

Close Universal Navigation
, to Homepage


MAIN NAVIGATION

 * Research
 * Events
 * Partnerships
 * Advisors
 * About us


SERVICE NAVIGATION

 * Regional sites
   Regional sites (click to show list of locations and regional sites)
    * Americas
       * Brazil Country Website
       * Canada
       * Colombia Country Website
       * Mexico Country Website
       * United States of America
   
    * Asia-Pacific
       * Australia Country Website
       * China Country Website
       * Hong Kong SAR
       * India
       * Japan Country Website
       * Republic of Korea Country Website
       * Malaysia
       * Singapore
       * New Zealand Country Website
   
    * Europe--Middle-East----Africa
       * Denmark
       * France
       * Germany
       * Israel
       * Italy
       * Ivory Coast
       * Luxembourg
       * Slovak Republic
       * Spain
       * Switzerland
       * United Kingdom
       * South Africa
   
    * Discover all locations
    * Discover all Corporate Solutions locations
   
   Close Worldwide

Open Search


SEARCH

Enter search term Type to search entire website submit search Close Search
Open Main Navigation Close
Close Navigation
back

Research

Our applied research covers emerging risks, industry trends and topical deep
dives.


Discover

Topics & Risk Dialogues

 * Climate and natural catastrophe risk
 * Health and longevity
 * Digital business models and cyber risk
 * Economy and insurance outlook
 * Casualty risk
 * China
 * Risk Dialogue: Underwriting
 * Risk Dialogue: Digital Ecosystems

SONAR

 * SONAR 2022

sigma research

 * Expertise Publications
 * Economic Insights
 * Economic Outlook
 * Insurance Monitoring
 * sigma data explorer
 * sigma 1/2023

CLIMATE CHANGE MITIGATION

Read More about: Climate change mitigation
Close Navigation
back

Events

Our events examine topics relevant to understanding risk and re/insurance.

Discover



SWISS RE CENTRE FOR GLOBAL DIALOGUE

YOUR PREFERRED PLACE FOR DIALOGUE

Read More about: Your preferred place for dialogue
Close Navigation
back

Partnerships

With selected research partners, we explore the future of risk coverage, assess
changes in the risk landscape and act as a catalyst for industry change.

Discover



BLOG STRENGTHENING TRUST IN DIGITAL IDENTITIES

Read More about: Strengthening Trust in Digital Identities
Close Navigation
back

Advisors

Meetings of the Swiss Re Strategic Council explore emerging issues and provide
strategic insights, advice and recommendations on the global economic,
political, regulatory ...

Discover


Close Navigation
back

About us

Superior research driving better decisions.

Discover



CONTACT US

Read More about: Contact us
Close Navigation


LOCATIONS AND REGIONAL SITES

 * AMERICAS

 * ASIA PACIFIC

 * EUROPE, MIDDLE EAST, & AFRICA

 * Brazil Country Website
 * Canada
 * Colombia Country Website
 * Mexico Country Website
 * United States of America

 * Australia Country Website
 * China Country Website
 * Hong Kong SAR
 * India
 * Japan Country Website
 * Republic of Korea Country Website
 * Malaysia
 * Singapore
 * New Zealand Country Website

 * Denmark
 * France
 * Germany
 * Israel
 * Italy
 * Ivory Coast
 * Luxembourg
 * Slovak Republic
 * Spain
 * Switzerland
 * United Kingdom
 * South Africa

Discover all Corporate Solutions locations Discover all locations

Close Navigation
Close Navigation

 1. Swiss Re Institute
 2. Research
 3. sigma research
 4. Economic Insights


THE COURSE OF TRUE DISINFLATION NEVER DID RUN SMOOTH


ARTICLE INFORMATION AND SHARE OPTIONS

This article was written By Mahir Rasheed, Senior Economist, Swiss Re Institute
& John Zhu, Chief Economist Asia Pacific & Diana Van der Watt, Economist, Swiss
Re Institute
Published on: 08 Jun 2023
Share Get the publication


REFERENCES

Despite rapid interest rate rises over the past year, central banks are still
far from meeting their inflation targets. We see persistent price pressures
precluding rate cuts this year, with services inflation the biggest obstacle to
disinflation. The hard market in insurance will likely continue as claims costs
also remain elevated; a volatile yield environment will need discipline in
balance sheet management.


KEY TAKEAWAYS

 * Headline CPI disinflation is set to slow in the next months as services
   inflation comes down at an even slower pace, or even accelerates.
 * With high inflation persisting, we do not see central banks cutting interest
   rates before the end of the year.
 * High inflation will continue to pressure claims and sustain hard market
   conditions in insurance.
 * Upside inflation risks will make it unclear how central banks will proceed
   with rate cuts in 2024.
 * Rates may need to ease only gradually to ensure that disinflation pressures
   persist long enough to reach central bank targets.
 * Insurers will need to manage a volatile yield environment through
   asset-liability management.

Central banks continue to battle well above-target inflation, and the resilience
of first-half price data so far signals that further interest rate hikes may be
in store. A second inflation surge is the main concern, especially if long-term
consumer and business expectations become unanchored after a prolonged inflation
overshoot, this followed by a "catch-up" in wage growth. With persistent high
inflation into 2024, hard markets in insurance will likely continue as insurers
seek to keep pace with still elevated claims costs.

Markets may be underpricing that the next move from the major central banks on
interest rates is up, and a possible "skip" in rate hikes for one policy meeting
should not be mistaken as a peak in terminal rates.1 The Federal Reserve's (Fed)
risk management approach is to do whatever it takes to prevent a return to the
1970s, when the central bank pursued a so-called “stop-go” policy that
alternated between fighting high unemployment and high inflation.2

The global outlook for disinflation depends primarily on the services sector.
This will impact personal lines insurers on account of high bodily injury
claims.  In the US, core CPI goods inflation peaked at 12.4% in February 2022
and has since eased to 2.1% in April 2023. While the disinflationary impact from
supply chain improvements and base effects will fade and goods inflation may
reaccelerate, core goods make up just 21% of the US CPI basket compared to core
services' 58% share. We expect US core services inflation will cool from 6.8%
currently to a still high 5.2% by year-end, contributing 3.0 percentage points
(ppt) to headline inflation alone. The bulk of services disinflation will be
driven by lagging shelter prices, but price pressures in non-housing segments is
unlikely to abate sustainably until wage growth eases from its current 5% pace
to the 3.5% y/y rate consistent with 2% inflation.

In the euro area, we expect the disinflationary path of core measures to prove
more shallow. Tight labour markets are underpinning worker and union bargaining
power3 but unlike in the US, wage contracts are settled as multi-year
agreements, meaning that the catch-up in real wages lasts longer. Public sector
pay settlements can set a high benchmark for subsequent wage negotiations in
other sectors (eg in Germany, where part of the public sector negotiated a 5.5%
increase after striking).This sets the stage for a prolonged disinflation
simultaneously risking a de-anchoring of inflation expectations.

Other central banks offer a template for how too-slow disinflation from too-high
inflation means a rate "pause" may just be a "skip". The Reserve Bank of
Australia (RBA) paused in April after increasing its policy rate at its previous
10 meetings. But it surprised markets by resuming tightening with 25 bp
increases in both May and June, citing persistent services price inflation and
an uptick in house prices. Wage growth has started to accelerate, suggesting a
"kinked" Phillips curve at record-low jobless rates (see Figure 1). In June, RBA
Governor Lowe acknowledged that inflation has peaked but that further tightening
is still needed to send a signal that interest rates will be high enough for
long enough to prevent price pressures from building again. The Bank of Canada
has followed suit in early June, raising its policy rate by 25 bp after two
consecutive skips, expressing concern that CPI inflation could get stuck above
the 2% target.

Figure 1
Wage Phillips curve in Australia

Source: Australian Bureau of Statistics

Our disinflation path (see Figure 2) is quicker than the 1970s inflation burst,
which was accompanied by a wage-price spiral. Supply-side shocks (mainly
commodities), the major cause of inflation today, typically have asymmetric
pass-through: faster and more complete on the way up than on the way down.
However, the current cycle is different given ongoing labour market tightness
and late-cycle catch up in real wage growth. Both are underpinning ongoing
strengthen in aggregate demand.

Figure 2
Prior disinflations in relation to our outlook

Source: US Bureau of Labor Statistics

How persistent inflation will remain is uncertain. But the risk that it could be
longer lasting is one reason why we do not expect the Fed or European Central
Bank (ECB) to begin cutting interest rates until 1Q24 at the earliest (the speed
and magnitude of cuts is also highly uncertain). In our baseline scenario, a US
recession in 2H23 will not prove severe enough to trigger outright deflation,
suggesting policy rates may need to ease only gradually to ensure that
disinflation pressures persist long enough to reach central bank targets. We see
the balance of risks skewed slightly higher for the ECB: the question is less
directional but by how much higher rates will go. For insurers, higher rates
support investment returns, although what could be volatile yield environment
will require careful balance sheet management.


REFERENCES


REFERENCES

Click to show content for References

1 Christopher J Waller: Hike, skip, or pause?, Federal Reserve Board, 2023.

2 Recession of 1981-82, Federal Reserve Bank of Richmond, 22 November 2013.

3 Season of discontent: strikes in Europe, Swiss Re Institute, 2023


TAGS

 * macroeconomic growth
 * interest rates
 * inflation
 * Economic Insights




ECONOMIC INSIGHTS PUBLICATION THE COURSE OF TRUE DISINFLATION NEVER DID RUN
SMOOTH


Get the publication


RELATED CONTENT FORMER ECONOMIC INSIGHTS

 * Economic Insights
   
   
   PUBLICATION INFLATION IN CHINA: MUTED, REFLECTING WEAK DEMAND
   
   02 Jun 2023
   Read More about: Inflation in China: muted, reflecting weak demand
   
 * Economic Insights
   
   
   PUBLICATION JAPAN: THE LONG GOODBYE TO QE
   
   28 Apr 2023
   Read More about: Japan: the long goodbye to QE
   
 * Economic Insights
   
   
   PUBLICATION ILLUSIONS OF STABILITY: WHEN MARKET PRICING DOESN'T TELL THE
   WHOLE STORY
   
   26 Apr 2023
   Read More about: Illusions of stability: when market pricing doesn't tell the
   whole story
   
 * Economic Insights
   
   
   PUBLICATION SEASON OF DISCONTENT: STRIKES IN EUROPE
   
   21 Apr 2023
   Read More about: Season of discontent: strikes in Europe
   
 * Economic Insights
   
   
   PUBLICATION US COMMERCIAL REAL ESTATE: EXPECTING PROLONGED CHALLENGES
   
   17 Apr 2023
   Read More about: US commercial real estate: expecting prolonged challenges
   

Show previous slide Show next slide

Footer


SHARE PRICE

CHF 00.0

− 0.0%

CET


NEWSLETTERS

Subscribe about Subscribe to our newsletters


CONTACT US

Contact about Contact us
 * About Privacy
 * Terms of Use
 * About Cookies
 * Cookie Settings
 * UK Slavery statement

Follow us on LinkedIn Follow us on Twitter Follow us on YouTube Follow us
on Instagram
© 2023 Swiss Re All rights reserved.
Scroll to top


Close Overlay


OVERLAY WITH SHARING OPTIONS

Share this on Twitter
Share this on LinkedIn
Share this via e-mail
Close Overlay

Your choice regarding usage of cookies on our website.

We use necessary cookies to optimise site functionality and give you the best
possible experience. We'd also like to set analytics cookies and/or marketing
cookies, however, these will be set only if you accept. You can set your
preferences using the Settings button. For more information, please see our
privacy policy about cookies.

Accept allthe use of cookiesDecline allChange privacySettings