Will a transition to net-zero cause higher inflation?

A gradual transition to ‘net-zero’ emissions would have a modest impact on inflation but could still make life more difficult for central banks if it happened at a time when other pressures were building.
Justin Chaloner Senior Economist
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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

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Long Run Update

Implications of more extreme weather events

Climate change is already making extreme weather events more frequent and more intense, which will worsen as the planet warms further. This is most likely to cause short-term disruptions to economic growth in some EMs. What’s more, it could result in more volatile inflation in all economies if internationally traded commodities are affected more frequently.

6 September 2021

Long Run Update

Implications of living with COVID

Many countries are increasingly well-placed to ‘live with COVID’ and will be able to avoid the need for occasional lockdowns. However, this requires reaching and maintaining a high level of immunity in the community and there is a risk that this will be out of reach for the poorest economies.

11 August 2021

Long Run Update

The implications of the pandemic decline in births

Birth rates have fallen in several advanced economies during the pandemic. Although we think that fertility rates will bounce back and there won’t be material long-term impacts, this presents a small downside risk to some of our long run forecasts for these advanced economies and may have implications for future policymaking.

23 July 2021
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