- The economic disruptions from Covid-19 are sending inflation on a downtrend, amplified by receding oil prices. With supply recovering more quickly than demand, excess capacities will keep inflation depressed this year and next.
- Further out, concerns are growing that ballooning central bank balance sheets may herald a rebound in inflation, tacitly welcomed by highly indebted governments. Deglobalisation, rising bargaining power of workers and increased industrial concentration may favor structurally higher prices over the medium term.
- That said, demand seems set to recover only very sluggishly from the deep crisis. This will keep the output gap wide for longer and demand for cash and excess reserves at central banks high. Depressed inflation expectations keep dragging on price pressures, while fiscal consolidation cannot be ignored forever. Accelerated digitalization is disinflationary, too.
- A marked acceleration of consumer price inflation thus remains a rather remote threat. A greater short-term risk is that asset prices will continue to absorb a significant part of the persistent monetary policy support.