Although there have been some difficulties in Europe, our view that vaccine rollouts will enable most developed economies to reopen in the medium term hasn't changed. As a result, we expect to see higher US inflation in the near term due to base effects when comparing with 2020.
Looking at year-on-year inflation, we will shortly be comparing current inflation to the low point in 2020 when the world economy was experiencing a deep recession. That will automatically make year-on-year inflation look high, not just for headline measures that include energy prices, but also for core measures.
For instance, in the United States, the Federal Reserve (Fed) has a long-term two per cent target for the core Personal Consumption Expenditures index (core PCE), one of its preferred measures of inflation. Core PCE will likely run well ahead of its target for at least a month or two. However, we don't expect inflation measures to continue coming in at those levels in the second half of 2021, and that by itself should dissipate some of the recent market concerns about a significant spike in inflation.
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