Our Stephen Miller provides a preview of economic and financial developments for 2023, published in Firstlinks.

As we enter 2023, I approach the task of previewing economic and financial developments with more than the usual trepidation.

In the first place, we may not be in uncharted waters but certainly unusual currents: high and stubborn inflation, rising interest rates and near constant warnings of imminent recession. The latter has been on the radar of the market commentariat for some time. That is understandable, but at the same time there is little evidence that a substantial economic activity dislocation is in the offing.

A second observation is that I’m not sure the lessons of both recent (post-pandemic) history and lessons of decades past (the high and persistent inflation of the 1970s) have been properly digested by markets and some central banks, including the Reserve Bank of Australia (RBA).

In terms of the post-pandemic period there is an enduring narrative that current inflation – while a little stubborn – is a temporary phenomenon reflecting pandemic-induced supply chain disruptions and outsized increases in the prices of a few selected commodities (largely, but not solely, energy related) that were given further impetus by the Ukraine conflict.

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