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Inflation peaked but will remain above pre-Covid levels: Mastercard

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Inflation has already peaked, but it’s going to remain above pre-Covid levels in 2023, said David Mann, chief economist for Asia-Pacific, Middle East and Africa on the Mastercard Economics Institute.

“Inflation has seen its peak this 12 months, but it’s going to still be above what we had been used to pre-pandemic next 12 months,” Mann told CNBC’s “Squawk Box Asia” on Friday. 

It’ll take a number of years to return to 2019 levels, he said. 

“We do expect that we return down within the direction of where we were back in 2019 where we were still debating what number of countries needed negative rates of interest.”

Central banks all over the world have been climbing rates of interest as recently as November in response to high inflation.

They include central banks from the Group of 10 countries — equivalent to the U.S. Federal Reserve, the Bank of England and the Reserve Bank of Australia — as well those of emerging markets, equivalent to Indonesia, Thailand, Malaysia and the Philippines, Reuters reported.

The Fed will hold its December policy meeting this week, where it is predicted to hike rates of interest by 50 basis points. The central bank has raised rates by 375 basis points thus far this 12 months. 

“Inflation has turn into that big challenge. It has been spiking and staying very high,” Mann said. But he warned that it could be dangerous if central banks find yourself climbing rates greater than they should. 

“The challenge is if you happen to’ve lost orientation of where the sky and the bottom is, you are not quite sure where it’s worthwhile to find yourself,” Mann said. 

It will be a “serious scenario” if central banks “find yourself going barely too far after which have to reverse relatively quickly,” he added. 

Consumer spending

Despite high inflation, Mann said, U.S. consumers are still willing to interact in discretionary spending in areas equivalent to travel. 

Travel recovery within the U.S. is powerful and persons are still selecting to spend on experiences moderately than material goods, Mann said.

And so they are being frugal about their spending on necessities with a purpose to have the opportunity to afford non-essentials, he added.

“There’s something at the back of people’s minds that worries them that regardless that it isn’t very likely, it’s still possible that those [Covid] restrictions [will] come back,” he said. 

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