Research Briefing | Jan 27, 2022

Rising risk of a higher inflation regime for global economy

Global | Rising risk of a higher inflation regime

The risk of a shift to a higher inflation regime in advanced economies has risen in the last six months, but markets may be under-pricing the risk in our view. The danger of a new inflation regime – 4% a year or more for several years – is greatest in the US, where we estimate the probability to be now 20%-25%.

What you will learn:

  • Long-term structural drags on inflation are largely still present, so our baseline view remains that medium-term inflation will stay low.
  • But our views on the risk of an inflation regime shift have shifted due to several developments.
  • Inflation has been higher and stickier for longer than expected, and analysis of the composition of inflation indices in the US in particular suggests broader price pressures. Some upward price shocks are also still ongoing.
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