Lagging At The Major Turning Points – August 9, 2021

A just-published report examined the long-term outlook for inflation, policy and asset market pricing, focussing on a major turning point that we believe is underway.

Currently, central banks and most investors are struggling to move beyond the 2010s and expect that recent economic strength and the increase in inflation will prove transitory. Government bond markets are priced for a return to the sluggish growth and disinflationary environment that dominated the 2010s.

We disagree with this view. The report noted the parallels with how the bond market and the Fed responded during the last secular turning point in inflation. The 1980s’ shift from inflation to disinflation and related re-pricing of asset markets was a slow, but persistent, process. And now we anticipate a similar process in reverse, as the world shifts from a long period of stagnant sub-2% inflation, to one where the underlying trend in inflation will gradually tilt upward.


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