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This is the average inflation rate of the world tracked by the International Monetary Fund (IMF). The global inflation rate fell from the 1980's primarily because central banks, led by Milton Friedman, have adopted the monetarist approach to their economies and restricted the growth of the money supply. In the 1980's world inflation was above 12% and it fell to around 2,3%. The danger with a very low inflation rate is that the world economy could enter a deflationary crash - such as occurred in the Great Depression. For this reason central bankers around the world became more dovish, especially since the 2008 sub prime crisis and now the COVID-19 pandemic. They engaged in quantitative easing (Q/E) and injected trillions of US dollars into the economies of the world. This has had the effect of pushing the US economy into a boom where it has been creating more than 400 000 new jobs per month and the unemployment rate has dropped close to 3,5%. In 2022, as a result of the massive expansion of the Federal Reserve Bank's balance sheet through Q/E, inflation began to increase. It reached 8,5% in April forcing the monetary policy committee (MPC) to begin raising interest rates aggressively and to reduce the size of the Fed's balance sheet by $47,5bn a month rising to $95bn from September 2022. This new hawkish policy caused the S&P500 to drop into a major correction which reached 19,4% during May 2022. Our expectation is that central banks around the world will continue to raise interest rates rapidly and engage in quantitative tightening (Q/T) to regain control over inflation.

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