Global inflation risks in the first half of the year are limited but need to be prepared

Recently, the concern about inflation in the international financial market is heating up again. At the same time, inflation expectations are also fueling the surge in digital currencies like bitcoin. At present, substantial inflation in major global economies such as the United States, Japan and Europe is not obvious, and the risk of rapid overall price rise in the first half of the year is still relatively limited. However, we still need to take precautions against potential risks caused by currency overissuance.

From the economic data of major economies, the US consumer price index (CPI) maintained growth for the eighth month in a row in January, the year-on-year increase was 1.4%, the core CPI increased 1.4%, both below the central bank's target; Japan's core CPI fell 0.6 per cent year on year in January, the sixth straight month of year-on-year decline. The euro zone's preliminary core CPI annual rate jumped to its highest level in five years in January, but was also just 0.9, while a market gauge of long-term inflation expectations fell below 1.30 percent. Apart from the US, which is close to the central bank's 2 per cent inflation target and most of all needs attention, there is no real inflation in the real economy and Japan has a deflation problem.

Since the outbreak, countries have pumped in large amounts of money, but mainly to help people who lost their jobs, prevent businesses from going bankrupt because of economic stagnation, and keep financial markets stable. The current pace of recovery suggests that the global economy has failed to achieve the V-shaped recovery expected earlier as a result of the second wave of the pandemic in most economies. The risk of another dip is reduced by vaccinations and stimulus policies, but the most optimistic forecast for a recovery in the United States, with a large output gap and the euro zone stuck in a double dip, is not until the second quarter of this year. In the huge stimulus measures, although a part of the funds will be used for investment, but not fully in place, and a considerable part of the funds will be used for structural transformation, coupled with the impact of the policy time lag, therefore, in the future for a period of time due to excessive investment caused by economic overheating and severe inflation will not appear temporarily.

Since the 2008 financial crisis, major economies have successively implemented ultra-loose monetary policies. In addition to cutting interest rates to historic lows, they have also implemented quantitative easing monetary policies to support the supply of credit to the real economy. At present, employment is the big challenge in the US, Japan and Europe, and wages have been struggling to rise. If excess money does not end up in the commodity sector, it may not lead to serious inflation.

Since last year, the continuous rise of international oil price has led to a slight recovery of US CPI data. However, the continuous rise of oil price has many reasons, and the actual pressure on the demand side is not great. The main reason is the price repair rise and the optimistic expectation of economic recovery, which leads to the expectation of rapid recovery of demand. Once the epidemic eases and the real demand rises, OPEC and other oil producers can gradually reduce production according to the market demand according to the frequency of their monthly adjustment of oil production, and the continued driving force of rising oil prices on rising prices is limited.

In addition to the crude oil, the current global commodities prices appear retaliatory rise, on the one hand is due to the limited supply, on the other hand, is also in the economic recovery expected it to a certain extent can improve the production cost, but it takes time to repair, the global economy outbreak ease helps to increase supply, and the rise in the cost of production if there is no demand for support, for the conduction of consumer prices may be limited.

In terms of price index, countries have obvious divergence, and this situation will continue for some time to come. There is no basis for global synchronized inflation. The most likely scenario would be an uptick in prices in some localities, such as the possibility of a slight inflation of more than 2% in the United States, but not high enough to dent economic growth. In this sense, in the short term, more efforts to fight the epidemic and stimulate the economy, so that the rapid recovery of the economy, to deal with the possible inflation situation is necessary.

To sum up, the impact of inflation in major economies such as the United States, Japan and Europe in the first half of this year will be relatively limited in terms of scope or degree. Due to the influence of the wrong month of the Spring Festival, China's prices have fallen, but we still need to take precautions to prevent imported inflation. In addition, although the inflationary pressure in the real economy appears to be limited at present, a large amount of liquidity has entered the virtual economy, which not only greatly reduces the effectiveness of policies, but also intensifies the bubble pressure in asset valuation and increases financial risks.