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Sep 21 - 09:55 AM

USD: The Inflation Genie Is Out Of The Bottle And Historically It May Take 10 Years To Bring It Down - BofA

By eFXdata  —  Sep 21 - 09:23 AM

Bank of America Global Research discusses the inflation outlook, and flags a scope for a sticky inflation in the advanced economies over the coming years. 

"We look at cases of inflation above 5% in advanced economies (AEs) in 1980-2000 and find that it took on average 10 years to bring it back to 2%. The consensus still expects G10 inflation to drop to 2% by 2024, but we are concerned it could take longer.

In a positive scenario, inflation starts to move in the right direction at a sufficient pace for central banks (CBs) to avoid a hard landing, even if inflation remains above 2% in the medium term. In a negative scenario, inflation is persistent and sticky on the way down, forcing central banks to a hard landing. The USD starts weakening in the months ahead in the positive scenario, but gets even stronger and stays strong for longer in the negative scenario," BofA notes. 

"Our baseline is the positive scenario, but risks for the negative scenario are increasing, in our view. The inflation data in the rest of the year will help us decide which scenario could unfold," BofA adds. 

BofA Global Research


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