Inflation has remained dormant for a long time, with years of below-target and weak inflation, but we are now reaching a delicate juncture where inflation is taking the driver’s seat in financial markets.
Whether this is just temporary or will prove persistent is the crucial question and at present there are two conflicting inflation narratives. A series of voices claim that inflation is just temporary. In contrast, others warn about the possibility that inflation will turn structurally higher than initially thought because of economic growth, upward pressure on wages, a fiscal push, strong consumer demand and rising supply constraints (commodity side).