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Inflation unlikely to be long-term factor

inflation short term limited

Inflation in certain world economies is expected to be a short term issue and is forecast to remain limited to specific countries.

Any pressure in economic markets around the world because of inflation is likely to be short term and limited to particular geographic regions, a senior global funds management executive has said.

JP Morgan executive director and global market strategist Kerry Craig noted increased levels of inflation experienced in some parts of the world are stemming from COVID-19-driven consumer spending behaviour that is expected to normalise over the short to medium term.

“We do know there has been a massive demand response in the global economy as economies have reopened or in fact as those government [stimulus] transfers to households and consumers have led to more spending on goods,” Craig said.

To this end, he pointed out there has been a spike in shipping costs recently.

“We’ve seen a similar spike if we go back a number of years and they do come down. It’s not something that’s permanent and we would expect this to unwind again,” he noted.

Further, he predicted inflation causing alarm was confined to certain countries only and in all probability will be contained in these regions.

“If we think about underlying core levels of inflation, where inflation has been created from a bottom-up perspective, it is in places like the US,” he observed.

“Europe and Japan still have relatively low levels of inflation. [In Australia] there are some inflationary pressures building, but not nearly as much as we’re seeing around the rest of the world.

“So that idea about the inflationary outlook and the risk is very much centred in only a few parts of the world, even though it is building up across the globe.”

According to Craig, the current lack of wage growth in Australia, a phenomenon present in the economy before the coronavirus pandemic struck, was an additional sign inflation will not be an issue for this country.

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