Analysis Inflation and Financial Markets - No longer ‘forever upward’

Inflation – the determining factor The linchpin for the possible path of monetary policy is the likely development of inflation. [...] However, inflation Stronger and more persistent inflationary trends would oblige the monetary authorities has the potential to to reduce their degree of accommodation, and would diminish the room for manoeuvre change that … that might be needed if financial markets were to be shielded from any further negative developments. [...] However, the view that inflation will be very subdued after the spike in 2021 is likely to … and indeed inflation does seem be put to the test if supply bottlenecks prove to be longer-lasting, and the already-visible set to pick up upward pressure on wages becomes stronger. [...] While the situation is not like the extreme scenarios of price-wage spirals in the 1970s, some wage acceleration is almost certain, as there is a shortage of labour in many sectors of the developed economies, and employees are demanding compensation for the loss of purchasing power that has already occurred. [...] Hence more volatility Given the prospect of a world with higher – it might be said ‘normalised’ – inflation rates, The prospect is for higher volatility … investors should brace for higher volatility as upcoming risks, such as developments in China, or new waves of the pandemic, will not be cushioned by monetary policies in the way to which investors have become used.