Global | Coronavirus Watch: Why rising inflation isn’t alarming
Higher headline and core inflation in advanced economies is on the way in H2 as a result of factors including rising commodity prices and supply-chain problems. But notions that pressures like this have never been seen before or that inflation will strengthen further in 2022 are wide of the mark.
Indeed, the global upswing in 2010-2011 also saw surging commodity and shipping prices as well as shortages of semiconductors. Although headline inflation did rise steeply, the core inflation pickup was unspectacular.
True, this time around the shocks may be bigger and even more numerous. But the pickup in advanced economy core inflation to a peak of 1.8% at the end of 2021 in our baseline assumes a notably larger trough to peak rise than occurred a decade ago.
It’s questionable whether this is large enough to de-anchor inflation expectations and generate a sustained bout of rising prices. Of course, the risks of more consistently strong inflation vary across economies and are particularly high in the US.
US: High debt costs suggest an industrial correction
The scale of the increases in debt costs, coupled with the low-yielding environment makes some repricing highly likely for gateway US industrial markets over the coming quarters.Find Out More
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