Outlook

Inflation was always expected to rise in 2021 as economies emerged from lockdowns, but recent inflation prints have surpassed expectations as global supply and labour shortages exacerbate base effects.Structural forces, particularly demographics, will continue to weigh on inflation over the longer-term but unprecedented monetary and fiscal policy, a slowdown in globalisation, and more patient central banks pose upside risks of a shift towards a higher inflation environment. Consensus expectations are for more severe inflationary pressures to ease as we enter 2022 and for inflation to return to levels not dissimilar to those of the past few decades. However, there has been a clear shift from the tail risk being one of deflation to one of high inflation, a scenario that could have profound consequences for the global economy and markets.

Read our article where we consider the risk of a momentary surge in inflation becoming a momentous shift to a prolonged period of high inflation.

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