This week inflation has once more been the topic dominating financial markets. US and UK consumer inflation came in higher than predicted and the debate about whether this is temporary or permanent has been revisited. Looking at the underlying data there appears nothing new, with most of the inflation coming from economic reopening and artificially low prices this time last year. The biggest contributors in the US are petrol and second-hand car sales, as people return to work, while in the UK they are transport (including fuel), restaurants & hotels, and clothing.
Although there are one or two dissenting voices, central banks say they are committed to lower interest rates and bond markets appear convinced they will stick to their guns. Some shorter-dated government bonds fell in value this week but longer-dated bonds (which are more exposed to inflation) rose in value, sending yields down slightly. With the UK fully reopening, furlough about to be withdrawn and Joe Biden’s plans for further stimulus getting bogged down in political horse-trading, the bond markets are factoring in considerably slower economic growth.
Read what the team at FE consider to be significant over the current week.