Around the globe, a synchronized upturn in nominal growth is underway, including an upturn in inflation. Global monetary policy is responding in kind. The Federal Reserve (Fed) is increasingly confident that inflation will hit its target rate and has begun accelerating its cautious rate-tightening cycle; the pendulum is gradually swinging toward tightening at other developed market (DM) central banks.
The investing community’s perception of inflation risk has swung during the current expansion from fear of an inflationary surge after the Great Recession to fear of global deflation when oil prices collapsed and, since last year, back to a reflation theme, again accompanied by worries that some economies, particularly the U.S., could overshoot their central banks’ targets. By contrast, throughout these periods, inflation itself (at least excluding volatile energy and food prices) has displayed surprising stability.
How far will reflation go in the U.S. and other developed market economies? How can we forecast inflation?[+] Read More