Pretty much stuck in the middle
At this point, surging inflation pressures are evident across the globe and we're not going to see much reprieve as supply and capacity constraints are persisting rather strongly heading into year-end and the early stages of next year.
For the inflationistas, they are being proven right at least for the time being.
But fast forward to eight to ten months down the road and we could be talking about a different story. Yes, the signs are still pointing towards more persistent price pressures at least through 1H 2022 but can we say for certain that things won't change in 2H 2022?
For one, base effects and energy inflation will not be as strong as they are in the current period so there is that to consider. And we're almost certainly not going to get the kind of stagflation risks that some quarters of the market are worried about.
As such, central banks are pretty much hoping to buy enough time to avoid any policy mistake and misstep in hiking rates (at least not too many) in trying to counter inflation pressures that they can do nothing about in addressing the root of the problem.
The facade they are building now is that all of this will start to dissipate in 2H 2022 but that was a case they were building for this year-end before pushing that to early next year and now the second half instead.
But like the boy who cried wolf, one of these days eventually that cry is going to be when the wolf really comes i.e. if you make enough guesses, eventually you'll get one right.
A lot will depend on how the world gets on from the pandemic and I'd argue that Asia is a key region to watch in that regard. The global chip shortage is one that stems from the region and while things are starting to improve, there's still a long way in catching up.
Something that isn't talked about is how conservative Asia has been in dealing with the pandemic in general, as compared to Europe and the US.
That remains a key distinction when it comes to the world opening up again and how that plays into a synchronised global recovery - which is what is needed for supply-side issues to resolve itself in a natural manner.
The borders across Asia are slowly reopening but there's still plenty of caution in trying to manage things to prevent any fresh COVID-19 waves.
The good news though is that lockdowns appear to be over for most countries in the region but China continues to remain a key caveat amid their zero tolerance policy.
To sum up, the inflation-believers are certainly riding high as of now but there will be plenty of moving parts still at play before we can even come close to deciding who will be right at the end of the day.
This is going to be an ongoing debate for many more months at the very least.
