By Robin Marshall, director, fixed income
Given the recent dislocation of global supply chains, some commentators have raised the prospect that inflation will return as aggregate demand recovers because of a negative supply-side shock from the coronavirus and its impact on capacity. Is this a legitimate concern?
Fixed-income markets currently think deflation is a greater risk
There is little evidence in fixed-income markets of inflation expectations recovering strongly. The chart below shows 10-year inflation expectations, as measured by breakevens, have stabilized somewhat after strong policy responses following the government imposed lockdowns, but remain well below