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A key question: What is the average inflation in the new higher inflation regime?
Due to the emergence of multiple scarcities (labour, energy, commodities, transport, electronic components, etc.), OECD countries have moved from a low inflation regime (2010) to a higher inflation regime. A key question is: what is the average inflation in the higher inflation regime ? In the low inflation regime, it was 1.6% in the United States and 1.1% in the euro zone. If it is 2%, or slightly higher than 2%, in the high inflation regime, central banks will not need to keep real interest rates high to keep inflation on average at the level of the inflation target. But if average inflation in the higher inflation regime is high (3%, above 3%), real interest rates on average will need to be much higher than in 2010, if central banks maintain an inflation target of 2%. This would have very significant consequences on acceptable debt ratios and on the valuation of financial or real estate assets.
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Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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