The global recession currently underway from COVID-19 will be deeper than any other since the Great Depression. Record-breaking falls in production and spending figures, alongside the largest monthly increases in unemployment ever seen are being recorded across the globe.
It is only natural when faced with this bleak picture, that the already-low probability of inflation will go even lower. Like most, we expect the near-term outlook for inflation to be challenging. However, we think investors should start to consider the risks beyond next year as there are many features about the current crisis that could mark a structural shift in inflation dynamics. Just as the pandemic could likely result in permanent change to consumer and work life patterns, as well as the relative fortunes of some industries forever, it is also reshaping the policy landscape and potentially the economic regime of the past few decades.
