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.

 

Topics: Economic impact, Global economy, Coronavirus, Coronavirus vaccine, Lockdown