Mastercard Says Inflation Has Peaked, But A Return To Pre-Pandemic Levels Will Take Years: What You Need To Know Right Now

Even if inflation has peaked, it's still well above pre-Covid levels and one economist is warning that it could remain elevated for a lot longer than most are hoping.

What Happened: David Mann, chief economist for Asia-Pacific, Middle East and Africa at the Mastercard Inc MA Economics Institute told CNBC that inflation is set to remain above pre-Covid levels for all of 2023.

"Inflation has seen its peak this year, but it will still be above what we had been used to pre-pandemic next year," Mann said Friday on CNBC's "Squawk Box Asia."

The economist anticipates that inflation will take a few years to come back down to levels that are consistent with the Federal Reserve's goals. Still, he warned that it would be risky for central banks to hike rates more than needed. 

If central banks go too far and are forced to reverse their policy stances quickly, it could create a "serious scenario," according to Mann. 

"Inflation has become that big challenge. It’s been spiking and staying very high," Mann said.

"The challenge is if you’ve lost orientation of where the sky and the ground is, you’re not quite sure where you need to end up."

Why It Matters: Central banks around the world have been rapidly raising interest rates in response to historically high inflation.

The Fed has issued a series of four consecutive 0.75% rate hikes leading up to its final meeting of the year on Wednesday. Most expect the Fed to opt for a smaller 0.5% rate increase following a series of encouraging data sets in recent weeks. 

Check This Out: Critical CPI Inflation Reading Coming On Tuesday: What Investors Should Expect

The Fed will get to see one more consumer price index (CPI) reading before it makes its decision. Economists are expecting the Labor Department to report CPI inflation of 7.7% in November on Tuesday, which would be in line with the 7.7% reading from October.

Any surprises in the CPI print could spark elevated volatility in the markets as investors attempt to assess how the Fed will react to the data the following day.

At the central bank's last meeting, Fed Chair Jerome Powell said there is still significant uncertainty around the level of interest rates that will be sufficiently restrictive to bring inflation down to its 2% goal. The SPDR S&P 500 SPY was extremely volatile as the market digested the specific language the Fed chair used. 

SPY Price Action: At the time of writing, the SPY was up 0.64% at $395.83 on Monday ahead of Tuesday's CPI data, according to Benzinga Pro.

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