US investment bank Goldman Sachs warns against rising inflation. Inflation will “boost” over the next six to nine months, Goldman Sachs chief economist told an online conference with customers.
Although there will be no rise in the prices that are galloping, after an unusually long period of low interest rates, there will be a “normalization of the inflation rate in the coming years”. In the coming years, inflation will be slightly above and below two percent.
The Financial Times talks about a new debate on inflation and quotes US Secretary of Commerce Wilbur Ross: “I think investors should start thinking about inflation again.” He also does not expect a sharp rise in prices, but a change of direction.
Warnings about inflation have always existed, but rather from notorious nonsense. However, the new debate is taking place at a different level. For example, the International Monetary Fund (IMF) described the latest data on global inflation as an understatement. The real price increase would be significantly higher.
Warnings are relevant to investors if they may mean an increase in bond rates. Many investors have bonds with negative yields in their portfolios. As yields rise, bond prices fall because no one is willing to buy bonds with bad yields.
Central banks should not be enthusiastic about the new debate
On the contrary, stocks are rising, at least initially. Since the beginning of the week, the yields of ten-year US Treasuries have risen to almost one percent. In addition, the so-called yield curve is rising, which means that longer-term bonds yield higher yields. This is seen as a sign of future economic recovery. And higher inflation.
(To hear the original Goldman Sachs client call, click here.)
Central banks should not be thrilled by this new debate. Jerome Powell, head of the US Federal Reserve, recently reiterated that the Fed will keep key interest rates low and follow an easy money policy for the foreseeable future. Christine Lagarde, Head of the European Central Bank (ECB), and Andrew Bailey, Head of the Bank of England, made similar statements.
The debate over expected higher inflation could undermine their easy monetary policy. Much depends on how real price developments behave and how government bond yields behave.