Why central bankers & politicians won't stop inflation

Skyrocketing power prices have turbocharged the inflation debate that has been going on for quite some time now. Our chief economist Eddy Markus thinks the world economy is headed for a sustained period of higher inflation. Here are some of the highlights from his Global Financial Markets report:

>???The markets are currently pricing in that central banks will soon ease off the monetary gas somewhat, which is to depress inflation to near pre-corona levels. ?

>???Indeed, they assume that stagflation will largely disappear once the spread of corona has been curbed more effectively. Current monetary policy is no longer appropriate here, as it has not changed since the low point of the corona crisis.?

>???As a result of the (tentative) tightening tendencies of central banks – the Fed in particular – interest rates and the dollar exchange rate have risen, while share prices and gold prices have fallen.?

>???We are concerned that the inflation risk is underestimated. To start with, many forces that have depressed prices in recent decades are weakening. ?

>???Moreover, central banks have made it clear that they want wage increases and inflation to end up at distinctly higher levels. This will also alleviate the debt burden and boost nominal interest rates. The latter makes it possible to reduce interest rates in the event of another recession. This is barely possible with the current interest rate of approximately 0%.?

>???Contrary to the last decade, inflation can rise far more easily over the next few years because of the current exceedingly high public deficits, which are financed monetarily. This is a far more effective way to boost the economy – and inflation.?

>???Politicians are happy to participate in this policy. However, this does not mean that share prices will keep rising for many years to come due to fiscal and monetary stimulus programmes. We will increasingly see a shift from profits to higher wages and interest charges (corporate taxes will also rise).

To find out what view Eddy and the rest of our analysts have on EUR/USD, interest rates, stocks and commodities, head for www.ecrresearch.com