Inflation - Waiting for Godot
A little concern about a renewed spread of the coronavirus is enough to tip the mood on the financial markets. This is what happened last week. Triggers were reports of a rising number of infections in the USA and a resurgence of infections in Beijing. This phase was ended, as so often in recent weeks, by the positive announcement of the US Federal Reserve on individual support measures.
Such a scenario with rising infection figures is likely to be repeated even more often in the coming months. The pressure on central banks for further support will increase every time. An important variable for the ability of central banks to react is inflation. Fears of a significant rise in inflation have increased again significantly in recent weeks. The background to this is the enormous increase in debt and the measures taken by central banks. However, there are no signs that the inflation trend is accelerating. On the contrary, weak demand and the low oil price are actually causing inflation to fall. In Germany, there will even be a negative inflation rate in H2 2020, as the value-added tax will be reduced from July.
So if you want to be absolutely concerned about rising inflation, you have to do so with a view to the long term. But you will also need staying power. The central banks have been pursuing an expansive policy for about 10 years now, with a slightly falling inflation trend.
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