Just as the global population is recovering unevenly from the Covid-19 pandemic, so the world economy is facing the challenges of inflation differently. It’s true that massive stimulus from major central banks, pent-up demand and disruption of worldwide supply chains have generally accelerated inflation and pushed up food and energy prices. But advanced economies in North America and Europe are facing much greater inflationary pressure than those in Asia and many developing countries. Likewise, inflation in China is subdued but its threat to the United States is much greater. There is room for Chinese authorities to ease measures to boost sluggish economic growth while the US Federal Reserve is set to raise rates and start monetary tightening. Such a scenario may even brighten Hong Kong’s economic outlook. China’s consumer and producer-price inflation outlooks have improved. The official consumer price index rose by 1.5 per cent last month year on year, down from 2.3 per cent in November. The factory-gate index increased by 10.3 per cent in the same period, down from 12.9 per cent in November. Domestic demand has stayed weak and is likely to remain so, according to some economists, amid Beijing’s hardline zero-Covid tolerance and a weakening labour market. Meanwhile, food inflation has eased and housing prices declined moderately in selected cities. Unlike its Western central banking peers, the People’s Bank of China, therefore, has room to ease more as growth slows. Why is the mainland economy slowing? What impact will the slowdown have on Hong Kong's economy and markets? It’s a very different story in the US. Having played down the inflation threat throughout last year, the Fed is playing catch-up. At an annual 7 per cent, the highest headline inflation rate in 40 years, it has signalled an intention to raise rates three times this year. It will be the first rate increase since the start of the pandemic, but given the historically low borrowing rates, this is still a relatively muted response to inflation. After all, it is mindful of inducing a recession if tightening goes too far. Across the Atlantic, a similar picture emerges. Inflation in the European Union rose to 5 per cent in December, the highest on record for the 19-country currency bloc. In contrast, much of Asia has managed to keep price levels relatively stable. After a period of political and economic turmoil, Hong Kong may hopefully have a better year. Inflationary pressure has been fairly benign, with the consumer price index rising by 1.8 per cent year on year in November. The rate increase by the US Fed will exert some upwards price pressure, transmitted via the US dollar peg. But, given the readiness of economic planners on the mainland to maintain price stability, any price rises in key imports from across the border will remain mute. The city may actually end up in a good place.