Is inflation set to return?

What investors can expect from post-Covid recovery.

Graphic of two arrows representing inflation and deflation

As countries across the world roll out Covid-19 vaccines at varying rates, markets are grappling with the investment implications arising from the gradual re-opening of the global economy, and a recovery from the drastic slump recorded in 2020. This will impact different sectors in different ways, but one of the biggest over-arching questions right now is this: will inflation return as an issue for investors to worry about, potentially in a way not seen in a generation?

These concerns are understandable. It’s fair to say that we are certain about the prospect of recovery this year, but we lack all certainty about its magnitude. So far it looks as though activity in the first part of the year will continue to be subdued as governments remain cautious about re-opening, but the second half of the year could see a very significant recovery indeed. On top of the natural economic recovery we would expect after such a long period of suppressed demand, we then have loose monetary policy and increased government spending to contend with. Under the Joe Biden presidency, public spending in the US may go well beyond explicitly pandemic related stimulus, towards funding “green” infrastructure plans.

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