Inflation Surprise Ahead

| Multi-Asset

Our World Inflation Nowcaster has reached the symbolic level of 0.5 standard deviations, which usually implies an average surprise of 38bps. This would see the current consensus forecast of 2.8% for global inflation in 2021 revised up to 3.2%. What is more, there is not a single component of our Inflation Nowcaster that is not pointing in that direction. Digging into history, the last times we saw readings this high were May 1995, March 2000 and January 2011. All of these episodes were followed by inflation beating expectations by an average of 0.6%: +0.5% in 1995, +0.5% in 2000 and +1.0% in 2011. If this was to happen again, then US CPI would reach a yearly growth rate of 3.6% – levels not seen since 2011 and the peak of oil prices, or since 2008 and the aftermath of the strong growth momentum of 2005-2007. Whichever way we look at it, we still see inflation as more likely to surprise investors this quarter than to disappoint.

 

Inflation Surprise Ahead
Source: Bloomberg, Unigestion. Data as at 31 March 2021.


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