The late, great return of inflation – TDS

Analysts at TDS suggest that markets continue to doubt that most central banks will be able to reach their inflation targets anytime soon.

Key Quotes

“Our analysis suggests Phillips Curves are not dead: with a lag, tighter labor markets and above-trend growth will translate into higher core inflation and tighter monetary policy in 2018.” 

“Headline inflation forecast errors are highly correlated with oil prices and exchange rates. Given our forecasts, we expect consensus and central bank expectations for 2018 headline inflation rates may need to be revised higher.”

“Exchange rate dynamics could create complications for inflation targeting central banks. Appreciating currencies may work against higher inflation for some inflation-targeting central banks, but a weak USD may boost global inflation via easier global credit conditions and petrodollar recycling.” 

“Structural factors likely are helping to hold down trend inflation in advanced economies, but we do not see a need to resort to novel explanations for recent low inflation data.”