Research Briefing | May 18, 2021

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.

 

Back to Resource Hub

Related Services

Post

NBP puts hikes on hold despite rising inflation and FX woes in Poland

The National Bank of Poland (NBP) kept its policy rate unchanged at 6.75% yesterday, undershooting consensus and our expectation of a 25pbs move. The decision took place against the backdrop of another upward surprise in inflation, which picked up to 17.2% in September, as well as mounting pressure on the PLN, not least due to the hawkish shift of AE central banks.

Find Out More

Post

Local rates and FX: Asian local currency sovereigns – not long now

The pieces are almost in place for a high conviction OW on Asian local currency debt, but not quite. Indeed, we maintain a cautious view on all EM local currency sovereign bonds, including Asia, given the relentless concern over the dollar and domestic inflationary pressures.

Find Out More