Global Coronavirus Watch: Time for a re-think on inflation?
We think that recent inflation surprises are not evidence of a regime shift in price-setting behaviour. But the path for inflation over the next few months is highly uncertain and depends on several difficult-to-predict factors, ensuring that every development will be intensely scrutinised.
Surging demand for goods along with major supply chain issues are likely to lead to further goods price rises even as spending patterns begin to shift back to pre-crisis norms. It will probably take several more months for freight bottlenecks and semiconductor shortages to be resolved.
But the extent to which, for instance, US durable goods prices have deviated from their longer-run trend does suggest that as we move into 2022 the goods sector may start to be disinflationary.
Another potentially major upward force globally is likely to be higher services inflation. For now, it seems that firms are returning prices to their pre-pandemic trend path, rather than pushing them on to a new higher trajectory. But services firms may view reopening as a timely opportunity to raise prices leading to a larger-than-normal clumping of price hikes.
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
Surging global food prices could drive eurozone core inflation higher
Along with energy prices, global food prices have emerged as a key driver of the eurozone's current inflationary surge. Like other advanced economies, eurozone countries tend to be less exposed to global food price fluctuations. But if persistent and combined with strong demand, high food prices could result in a higher pass-through to core inflation.Find Out More