The highly-anticipated jump in U.S. inflation has arrived. While the sustainability of the increase remains open for debate, recent readings have surged and market-based indicators continue to show a surprisingly prolonged increase in inflation expectations. In particular, following today’s strong CPI report for April, U.S. 10-year inflation breakevens stepped up to a fresh cycle high of just under 2.6%, prompting intensified inquiries from inflation-wary clients. In response to these questions, and in the context of the ongoing inflation debate, we have not only revisited some of the findings from our earlier work on global inflation, such as the effects of central bank liquidity, rising government debt levels, and ageing demographics, but we have also examined the effect that tightening labor market conditions and other potential shocks may have on inflation looking toward 2022.
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