Research Briefing | Jun 24, 2021

US | Inflation will be sticky but not oppressive

Inflation will be sticky but not oppressive - iPad

The US economy is unlikely to experience an inflation regime shift. But after a decade of glacial price rises in the wake of the financial crisis, it will experience a prolonged period of warm inflation above the Fed’s 2% target. That stickiness will initially reflect post-Covid supply and demand imbalances, but from 2022 onward, it’ll reflect sustained economic and labor market strength.

What you will learn:

  • As of mid-2021, we see only a 10-15% chance of the US economy shifting into a high-inflation regime (persistently above 5%), and we find that such a shift generally requires a combination of factors and takes multiple years to occur.
  • While business pricing power is near record-highs, we believe an inflationary psychology is unlikely to settle in. Instead, we see a negative demand response, which should lower price pressures, in sectors with the highest inflation.
  • Similarly, while lower-paying jobs are getting unprecedented wage growth, we believe this reflects a one-time releveling of low wages rather than a permanent shift in workers’ bargaining power. 
Back to Resource Hub

Related Services

Office building in London

Post

High debt costs suggest European office price correction

Our analysis suggests a 10% correction is needed on average for the major office markets in Europe to compensate for the higher cost of debt, with prime yields required to soften by 10bps-75bps to generate a low-risk interest coverage ratio at a reasonable LTV.

Find Out More

Post

Why an ageing population doesn’t mean soaring inflation

What’s the future for inflation? Joachim Nagel, the new president of Germany's central bank, believes the rapidly ageing global population will play a key role – ramping up pressure on prices in the medium term. While we agree slowing labour supply will stifle output growth, in his recent discussion Nagel failed to fully consider the demand side of the argument.

Find Out More