This is not the deflationary bust; probability of longer-term inflation resurgence rises materially

The latest global inflation report from Global Perspectives notes there is a natural tendency to focus on the consumer and business demand destruction that Covid-19 is wreaking around the world, but this is very far from the whole picture. Indeed, while some will attempt to infer from the collapse in US Treasury bond yields that the world is in the throes of a deflationary bust, says the firm, the reality is different and more complicated, with the probability of resurgent inflation on a 3- year horizon having risen materially. In assessing the global inflation outlook over the next 2-3 years, it is essential to examine the other factors at work, according to Economic Perspectives: first, investors should expect a series of ‘shock and awe’ fiscal responses from G8 countries in mitigation of the disruptive effects of coronavirus; second, investors should not overlook the unfolding profits shock and credit squeeze that could tip substantial numbers of companies into bankruptcy and shatter supply chains and networks; third, warns Economic Perspectives, Covid-19 brings closer the fracture of the entire macro-policy framework on which so many investment strategies rest.