DB says that inflationary pressure is receding:
- central bank tightening
- supply chain pressures have diminished
- commodity price inflation has subsided
But, say the analysts, now is not the time to become complacent, urging caution. Outlining 4 reasons to be wary of an inflation resurgence:
1. Above target inflation persists in every G7 country
2. With CPI above target for two and more years a new price shock could easily unanchor inflation expectations
- “If there is another shock and inflation remains above target into a 3rd or even a 4th year, it is increasingly difficult to imagine that long-term expectations will repeatedly stay lower than actual inflation”
3. Sluggish economic growth with policy tightness hitting the economy
- bonds yields surging
- higher-for-longer
- US debt-to-GDP soaring, limiting the prospect for fiscal stimulus
- sticky inflation limiting the scope of monetary policy to provide stimulus
4. Risk the Fed could overdo tightening due to lags in policy impact, perhaps sending the US into recession
One of these is not at risk of over tightening