Coronavirus Watch: Inflation – this time isn’t different
The prospect of large shares of some economies’ populations being vaccinated in the first half of 2021, supporting a return to some degree of normality, has stoked renewed concerns that inflation could pick up sharply this year.
With markets priced for monetary policy to remain accommodative in response to a further sustained period of lowflation, clearly inflation risks need to be weighed carefully. But in our view the threat of a surge in inflation asserted by many is overstated, and we expect core inflation to remain weak for some time.
What’s more, we think any pre-emptive tightening of policy to prevent a rise in inflation would be a mistake that would likely increase risks of economic scarring in the medium-term.