Is the inflation genie out of the bottle?

In a stark case of ‘be careful what you wish for’, back in 2020 inflation was below central bankers' target ranges, and they were asking their governments to loosen the fiscal purse strings to help get things going again. Fast forward to now and inflation around the world is above most central bank’s target ranges, and is at levels not seen for many years.

The rapid rise in inflation through 2021 caused global interest rates to rise from their lows, and rotation within equity markets from long dated growth stocks to cyclical stocks. So, will this continue in 2022?

The short answer is Yes, but not to the same extent. In the USA, the price indices for all the main broad categories increased and came in above expectations on both month-on-month and annual measures. US CPI is at a 39-year high, with analogous levels across most developed economies. The momentum of price increases is strong into the New Year and is becoming increasingly broad based.

A confluence of factors have combined to drive up inflation – some of them transitory and some of them not. To the extent the causes are transitory, then inflation should dissipate going forward.