A number of inflationary tailwinds have started to subside, which means the world is likely close to a peak in headline inflation. But not all countries will see inflation peak at the same time, with the UK notable in its vulnerability to a further acceleration in inflation data, at least in the short term. Given Bank of England warnings that inflation will reach 13% by year end, this shouldn’t come as a surprise.
Once inflation peaks, the statistical impact of base effects could cause inflation data to moderate relatively rapidly, and investors may start to look for a return to the inflationary environment seen before the pandemic. We believe that such optimism would be misplaced. Inflation is likely to take considerable time to return to central bank targets and, once the statistical effects wash out, prove to be stickier than many believe.
David Hooker, portfolio manager, Insight Investment
Doc ID: 1085817
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