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Global Inflation Update

With headline inflation remaining elevated globally, Western Asset, part of the Franklin Templeton Group, revisits the specific inflation drivers in three major economies: the US, eurozone and UK.

In the attached paper, Richard A. Booth, Portfolio Manager/Research Analyst, at Western Asset highlights differences in recent inflationary impulses, expectations for inflation trajectories over the coming months and the potential implications for bond yields.

He notes:

  • US inflation has run much higher in 2021 than either Western Asset or the Federal Reserve (Fed) projected just a year ago. This upside surprise has been driven primarily by three key factors:
    1. Energy prices have risen approximately 50% over the last 12 months;
    2. the switch in demand from services to goods during the COVID-19 pandemic continued in 2021, and
    3. bottlenecks in goods production continued to push goods prices higher.
  • Inflation in the eurozone has likely peaked, but over the next three months the risks are that it does not fall back as much as expected on the headline measure. This stems from energy services which is a combination of electricity and heating costs.
  • Inflation in the UK rose more than expected in 2021, driven by the dynamics described earlier for the US and eurozone: supply-chain disruption, bottlenecks amid supply and demand shocks during the course of the pandemic, and significantly higher energy prices.

Download the full report


 

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