Post-crisis inflation fear: Here we go again – or is it for real this time?
The extraordinary events of 2020 so far have had a huge impact on the global economy and financial assets across the board. Although some riskier asset classes, such as equities or high yield bonds, along with oil prices, have recovered significantly from their mid-March lows, the economy may still be in the process of bottoming out.
The combination of major oil-price shock and a sudden collapse in demand, amid the current deep recession, has led to a significant downward revision in short-term inflation estimates across the globe. Forecasts by leading investment banks and research firms see inflation in major economies, with the exception of China, falling by half in 2020 from 2019 levels – and in some cases by even more.
However, following unprecedented monetary and fiscal policy action, concerns have resurfaced regarding the possibility of a resulting increase in medium- to long-term inflation.1