The market commentary about the level of appropriate inflation and potential long-term inflationary concerns will be in focus this week as the March Consumer Price Index (CPI) data is released. The next few months will show a significant pickup in year-over-year inflation as the readings from the beginning of the pandemic begin to fall out of the calculation. The short-term pickup is all but certain at this point but will serve to escalate the conversation about intermediate- and long-term inflationary pressures.
The primary argument for why inflation will pick up in the longer term is the amount of fiscal and monetary stimulus that continues to be pumped into the economy. The additional money supply will lead to more demand for goods, pushing up prices. The pickup in money supply is occurring after a period where global deflationary pressures prior to the pandemic were picking up and pushing prices down. Negative interest rates in many parts of the globe were a key indicator of this pressure.
I expect the inflation conversation will be a major area of difference in market opinion during the remainder of 2021. The outcome of the inflation debate could have a significant impact on asset pricing.
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