Shifting Sands: The Argument for a High-Inflation Regime

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The text opens a discussion around the expectation of financial markets for headline inflation rates to drop significantly towards central bank targets over the next couple of years, maintaining stable inflation expectations in the medium to long term. However, the author, Robert Lind, suggests that markets may be underestimating the potential shift towards a high-inflation regime, due to various factors including a structural loosening of fiscal policy, workers gaining bargaining power, and trade fragmentation.

Historical Context and Current Economic Forces

The author provides historical context, highlighting the consistent overestimation of real growth and inflation paths post the global financial crisis. Economists and investors, anchored in 'secular stagnation', anticipate inflation levels returning to central bank targets, given the temporary surge during the pandemic and the energy shock. However, Lind asserts that markets may be underestimating the possibility of a shift towards a high-inflation regime, primarily driven by three political and economic pressures forcing central banks to accommodate higher inflation rates.

Dive into the detailed analysis of the potential shift to a high-inflation regime by clicking on "Read report" and unravel the intricacies of these economic forces.