Inflation is rearing its ugly head again and is directly linked to important themes that impact markets and our every day lives. In its last FOMC meeting the Fed dropped the term transitory it had been using all year to describe the inflationary pressures being felt globally. Of course, it didn’t say inflation was here to stay as it would have scared financial markets but if there was a term that described a time period in between transitory and long term it would have been used. Although the path to higher yields is still set on a path for 2023, we can’t exclude this being moved forward to 2022 if inflation remains persistent.
The current energy crisis also has an impact on inflation which in turn will have an impact on consumption. With the unprecedented measures that have unfolded post Covid, it is hard to say whether inflationary pressures will ease as the restrictions become laxer or they will stay around longer. A slow improvement is likely the way forward as the world learns to live with Covid rather than eliminating it altogether.
In October we will hear the third quarter earnings calls from companies around the world and which will give us some idea about how long it will take to resume a more normal state of affairs and how much longer we have to endure rising inflation.