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

Inflation has already peaked, but will remain above pre-Covid levels in 2023, said David Mann, chief economist for Asia-Pacific, Middle East and Africa at Mastercard Economics. Institute.

“Inflation has peaked this year, but it will still be higher than what we were used to before the pandemic next year,” Mann told CNBC’s “Squawk Box Asia” on Friday.

It will take a few years to get back to 2019 levels, he said.

“We expect us to go back in the direction we were in 2019, where we were still debating how many countries needed negative interest rates.”

Central banks around the world raised interest rates as recently as November in response to high inflation.

They include the central banks of the Group of 10 countries – such as the US Federal Reserve, the Bank of England and the Reserve Bank of Australia – as well as those of emerging markets, such as Indonesia, Thailand, the Malaysia and the Philippines, Reuters reported.

The Fed will hold its December policy meeting this week, where it is expected to raise interest rates by 50 basis points. The central bank has raised rates by 375 basis points so far this year.

“Inflation has become this big challenge. It’s peaked and is still very high,” Mann said. But he warned it would be risky if central banks end up raising rates more than necessary.

“The challenge is that if you’ve lost orientation of where the sky and the ground are, you’re not quite sure where you need to end up,” Mann said.

It would be a “serious scenario” if central banks “end up going a bit too far and then have to backtrack pretty quickly”, he added.

Despite high inflation, Mann said, American consumers are still willing to engage in discretionary spending in areas such as travel.

The U.S. travel recovery is strong, and people are still choosing to spend on experiences over material goods, Mann said.

And they are being frugal in spending on basic necessities so they can afford non-essentials, he added.

“There’s something in the back of people’s minds that worries them that while it’s not very likely, it’s still possible that these [Covid] restrictions [will] come back,” he said.