The Great Reflation

Global inflation update—Nov 2021

  • Reflation since the pandemic has been driven by non-energy industrial goods (durables) whereas service inflation has in general lagged;

  • Those countries that have experienced a pick up in service inflation (such as in Central and Eastern Europe) have been amongst the most aggressive in the tightening cycle to date;

  • Two key questions emerge for Core CPI for inflation targets:

    • How long will durable goods inflation continue above past trends?

    • And will service inflation pick up from here in developed markets?

After a decade of disinflation forces dominating the global economy—offset only be the persistence of the Chinese authorities in pushing credit there and the global cycle—the pandemic has fundamentally reshaped developed market household balance sheets and provided a post-GFC reflationary backdrop at last.

Indeed, the reflation unleashed during the gradual re-opening throughout 2021 continues into October—and this is not only about base effects.

We use this inflation update to: first, explain how developed market prices pressure differ from anything seen in the prior decade; before, second, reviewing global inflation developments through October.

Traded goods inflation makes a revival

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