Although the global economy turned into the new year in the grips of the second wave of the pandemic, a lift-off expected to take hold this month should spark a huge bounce in growth and a material rise in inflation. After a projected slowdown in growth to below potential this quarter, we anticipate global GDP growth will surge to a 7.5% ar in the middle quarters of the year. Following last year’s collapse in global core inflation to 1%oya, we expect global inflation to rise to a 3%oya pace next quarter, its highest level in a decade.

Incoming news suggests the bounce is beginning earlier than expected. February business surveys generally have surprised to the upside, with our global all-industry PMI output posting a 0.9pt rise to a level consistent with global GDP growth 1%-pt stronger than our 2.1% ar outlook for this quarter. Upbeat future outlook expectations have sustained strong business spending gains even as consumers sagged around the turn of the year. Moreover, our Google activity measure of mobility (GAI) took a decisive step up in the second half of February and is tracking a large 3.5%m/m global retail sales gain. This suggests that an anticipated March consumer spending bounce may have already begun (Figure 1). Aligned with our growth forecast, the largest GAI moves have come in Europe. But mobility has also risen substantially in the US and EM Asia. This upbeat message is reinforced by this week’s US employment report, which delivered a larger-than-400,000 gain in retail, leisure, and hospitality jobs last month despite depressing weather effects.

The momentum shift taking hold in inflation is equally impressive. We look for the US to deliver a third consecutive elevated monthly CPI increase next week, fueled by rising food and energy prices. Globally, the CPI is now tracking a 4% ar gain in the three months through February. With this move tracking ahead of our forecast and globally traded commodity prices still moving higher, there is upside risk to our headline CPI forecast for next quarter. The news on core inflation is more mixed. February has already delivered a partial unwind of last month’s Euro area spike and we look for modest gains in next week’s US and China reports. Overall, the three-month core inflation run rate is tracking close to our expectation for a 2% ar gain in February. However, there is considerable uncertainty about whether core inflation will stabilize in the coming months as we expect or rise further in response to booming consumer spending. A warning signal that we may be underestimating service sector price pressures was delivered this week as global PMI service sector output prices rose above their 2010-11 peaks (Figure 2).