LIVE MARKETS-Maybe we are too optimistic about inflation
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MAYBE WE ARE TOO OPTIMISTIC ABOUT INFLATION
Markets have been assuming the inflation beast was tamed, locked in its cage, and incapable of causing further harm.
But, if they are wrong, the fallout could be significant: hawkish surprises from central banks, renewed support for precious metals and other real assets, and equity selloffs, just as markets witnessed in 2015-16, late 2018, and 2022.
Deutsche Bank economists say the recent news flow points to several reasons why markets risk being too sanguine on inflation.
Activity data generally surprised on the upside, so there are clear demand-side pressures in the pipeline, they say mentioning PMIs figures released last week on both sides of the Atlantic.
“The lagged impact of recent cuts is still filtering through (in the U.S.),” they add, recalling the Federal Reserve cut rates by 200 basis points from mid-2024 to mid-2025.
The impact of tariffs, expected to be inflationary in the U.S., has yet to fully play out.
They also mention upcoming fiscal stimulus in Germany, oil prices picking up from October's lows, after latest sanctions and inflation being persistently above targets across major economies.
(Stefano Rebaudo)
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