As the post-Covid recovery takes hold, inflation has increased rapidly to 5% in the US and over 2% in Europe triggering concerns on future interest rates, as central banks could be forced to reverse their lower-for-longer policies to meet their restated long-term inflation targets.
Apart from quantitative easing, one of the key drivers of low inflation has been the reduced velocity of money circulating in the economy. Most concerns around inflation are centered around velocity returning to more normal and higher levels, which would support the argument for a period of above target inflation.
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