Inflation may rise far more than expected
With global inflationary surprises having caught most economists and central bankers off-guard over the past two years (“transitory” being the functional word), it is not hard to see why even now so many forecasts out there continue to point to moderation ahead; mostly back to the old norms before lockdowns, in the 0-3% that we have become so used to.
However, we argue that higher inflation will still beat expectations, and is likely to stay for longer still compared to popular expectations. In fact, a likely outcome might look like the 1970s when we had a previous (also energy price driven) inflationary cycle. Even a more modest trajectory that is above consensus but still below the 70s peak will take us into double-digit territory, looking something like this chart:
