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Global Inflation Watch

Shortages skew inflation risks to the upside

11 Oct 2021

Inflation is set to stay higher for longer than we previously envisaged due to surging energy prices and goods shortages. The boost from energy will go into reverse next year due to base effects and lower oil and gas prices. Goods shortages are worsening and will persist for some time given lean inventories, pandemic-related shutdowns in Asia, and strong demand for imported goods. These pressures should start to ease next year. But there is a risk that the shortages trigger a more persistent pick-up in price pressures, particularly when labour is also in short supply. Staff shortages are most pronounced in the US and intensifying rapidly in the UK and Canada. In all, while we expect inflation to ease back to below target in the next couple of years in Japan and Europe, it will settle at higher rates in the US.

11 Oct 2021

Asset Allocation Focus
Examining the threat to US equities from rising wage inflation
22 Oct 2021
China Economics Update
Pullback in easing expectations overdone
20 Oct 2021
US Economics Update
Deepening labour shortages point to lasting damage
13 Oct 2021
Global Central Bank Watch
Rate hikes brought forward, but end point still low
29 Sep 2021

UK Markets Chart Book

Investors overestimating interest rate hikes

22 Oct 2021

The extent of the shift in investors’ expectations of interest rates over the past month has been staggering. Investors are now pricing in an 80% chance of a hike to Bank Rate, from 0.10% to 0.25%, at the Monetary Policy Committee (MPC) meeting on 4^th And a further rise to 0.50% is now fully discounted in markets by the meeting on 3^rd February. We agree with investors that an interest rate hike in the next few months looks increasingly likely. But, in our view, the extent of tightening that investors have priced in looks wide of the mark. Instead, we expect the Bank of England to hike rates gradually and by less than most expect. That’s based on our forecast that economic activity will be soft over the next few months, and that CPI inflation will peak just shy of 5% in April 2022 and fall back sharply thereafter.

22 Oct 2021

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