Research Briefing | Jun 2, 2021

Global | Assessing the risk of an inflation regime change

Ipad Frame (53)

Inflation in advanced economies is set to rise this year to the highest rate in a decade. This has sparked fears of a shift to a high inflation regime which could feature inflation persistently above 5% and with very different dynamics. Such a shift would have profound consequences for economies and financial markets.

What you will learn:

  • While the evidence suggests a shift to a high inflation regime can’t be ruled out, for now we would only give it a probability of around 10% for the global economy, and a slightly higher 15% for the US.
  • Our modelling shows that since the 1950s a given economy has roughly a 10% chance of switching from low to high inflation from year-to-year.
  • The risk of a sudden shift now is lower than in past decades as the period since the 1990s has seen generally well anchored long-term inflation expectations, thanks in part to inflation targeting.
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