What has driven periods of higher inflation in the past?

When contemplating whether we are entering a new era of higher inflation, it makes sense to first reflect upon the lessons from history. While there are several insights that apply to the current debate, a unifying theme is that sustained high inflation is not simply ‘always and everywhere a monetary phenomenon’ – labour and product market institutions determine the extent to which price pressures translate into actual inflation, and where inflation settles in the medium term is ultimately the decision of policymakers.
Simon MacAdam Senior Global Economist
Continue reading

More from

CE Spotlight

The rebirth of inflation?

The debate over inflation has become polarised between those who expect a return to the 1970s and those who believe inflation is still dead. The reality is more nuanced and inflation outcomes are likely to vary between countries. A new era of higher inflation is most likely to emerge in the US and perhaps the UK. But we think inflation will remain extremely low in the euro-zone, Japan and China. In those countries where we anticipate a sustained rise in inflation, the most likely outcome is that it increases to moderately higher rates of 3-4%. But risks are generally skewed to the upside and there is a real possibility that inflation increases to a much higher rate that would, in time, necessitate a more substantial tightening of policy.

30 September 2021

CE Spotlight

What would an era of higher inflation mean for currencies?

We think that a return to a regime of higher and less stable inflation in many major economies would result in a rise in exchange rate volatility and, over time, the depreciation of the currencies of those countries which experience higher inflation.

30 September 2021

CE Spotlight

What would an era of higher inflation mean for markets?

We expect underlying inflation in the US to be significantly higher over the next decade on average than it has been over the last one. Nonetheless, we don’t think that it will climb sharply from here, or that it will coincide with much weaker economic growth or tighter monetary policy. So, in our view, markets will not falter in the way that they did during some periods of high inflation in the past.

29 September 2021

More from Simon MacAdam

Global Economics Update

What an Evergrande collapse would mean for the world

We think that the ‘China’s Lehman moment’ narrative is wide of the mark. On its own, a managed default or even messy collapse of Evergrande would have little global impact beyond some market turbulence. Even if it were the first of many property developers to go bust in China, we suspect it would take a policy misstep for this to cause a sharp slowdown in its economy. In a hard-landing scenario, several emerging markets are vulnerable. But in general, the global impact of swings in Chinese demand is often overstated.

16 September 2021

Global Economics Update

Sky-high shipping costs pose upside risk to inflation

Our inflation forecasts already incorporate some passthrough of pipeline pressures including higher shipping costs to consumer prices. But given that maritime shipping costs have never surged anywhere near as much as they have done during the past year, the full extent of the passthrough is difficult to predict. Our sense is that inflation risks staying higher for longer than we and others anticipate in the coming year.

14 September 2021

Global Trade Monitor

Plateau in world trade and supply bottlenecks to persist

The latest data show that world trade has flattened off at a high level. While timely indicators suggest that trade is unlikely to reaccelerate, it doesn’t look set to weaken much either. Consequently, bottlenecks at ports, and associated delivery delays and sky-high shipping costs, should endure into 2022.

25 August 2021
↑ Back to top