Anticipate Stagflation, Not Deflation: Plan Wisely

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This week is all about inflation. With US Consumer Price Index (CPI) data due tomorrow, the question on everyone’s lips is: just how high will core inflation remain? It’s a worrying sign making market bulls increasingly anxious, as inflation seems to be increasingly sticky in the West. We could be looking at a different outlook than most have been expecting…

Within the US, central bank officials believe inflation will rise further throughout the year, some seeing implications for the policy strategy. With this in mind, next week’s Federal Reserve meeting could be highly influential in providing the latest clues whether officials will further raise interest rates.

In Europe, investors pay close attention to how the Eurozone will respond. ECB chief Christine Lagarde has warned of unavoidable inflation over the next six months, something which will be a test for the European Central Bank’s inflation containments policies.

It’s not just the US and Europe which are being impacted. In this increasingly interconnected world, high inflation values in both the US and Europe can spread further afield. With global trade slowing, higher inflation could reduce trade and investment, making it harder for other economies to recover.

Ultimately, this week’s developments in inflation levels will directly speak to the economic rebound of 2021. If inflation proves to be more persistent than expected, it’s going to be a real challenge for central banks to contain the pressure and reignite the economic recovery. The only certainty at this point is that the volatility of markets and market movements will continue as we wait for tomorrow’s figures. Investing in this uncertain environment may prove difficult for most, but for some, there could be some big returns.

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Anticipate Stagflation, Not Deflation: Plan Wisely