Inflationary trend likely to be a US phenomenon, other parts of the world could see disinflation: Macquarie's Viktor Shvets

As globalization unwinds, inflation will no longer be a shared global trend.

As the global economy adjusts to U.S. President Donald Trump's tariff policies, inflationary trends are likely to diverge across regions. According to Viktor Shvets, global strategist at Macquarie, the United States may face persistently high inflation, while other major economies could experience disinflation or even deflation.

On April 2, touted as 'Liberation Day', President Trump unveiled a slew of broad-based tariffs on U.S. trading partners. "Early in the year, I assume that U.S. tariffs will go up from 3 percent to maybe 7, 8 percent. That would not have been terribly disruptive or inflationary or retarding growth in any meaningful way. If you think of Liberation Day and stack up all the tariffs, that looked like well over 30 percent," said Shvets.

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"That's a disaster!" he added.  "That's complete unscrambling of the entire world, both economically and geopolitically. Where are we going to end up? My view has always been somewhere around 15 to 20 percent. The 15 to 20 percent tariff rate is still inflationary, it is still disruptive, but it doesn't unscramble the whole world," Shvets added.

However, going ahead, persistent inflation is unlikely to impact the world. "Some countries will have a high inflation, some countries will have stagflation, other countries will have deep disinflation," suggested the Macquarie strategist.

"For example, if China cannot export their products, what do they do?" he asked. "They will have to dump it domestically, deepening disinflation." Alternatively, Shvets suggested that China could dump its goods in other countries, which would led to those countries protecting themselves.

Well, dump it domestically within China and therefore actually deepening disinflation within China or dumping it to other countries. And then other countries will start protecting themselves. So it's not just US putting up barriers.

"So it's basically everyone on everyone rather than the United States by itself. So in some places you're going to have stagflation, in some cases you have persistently high inflation, in other countries you're going to have deeper disinflation," he explained.

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