Despite continued economic concerns around further Covid-related measures and restrictions, the risk for 2021 is not on the recessionary side, but rather on the side of the natural consequence of rapidly accelerating economic activity: inflation.
The US PCE deflator (Personal Consumption Expenditure price index) rose by just 1% in 2020, i.e. very low inflation. The growth was even negative for its hardest hit components such as leisure goods (-2.9%), medical equipment (-10.7%) and energy (-19%). However, this should not conceal the fact that some components have recently gained strength. Household equipment and vehicles saw their prices rise by 3.2% and 4.9% respectively over the year. The implementation of vaccination campaigns should enable the components that are lagging behind to resume growth as energy prices rise. Given the levels reached by some components, it would not be surprising to see this US price index quickly return to its long-term average – and then exceed it.
Source: Bloomberg, Unigestion. Data as at 11 January 2021.
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