This is the most important question at the moment (aside all the macro issue).
Is really inflation coming?
Well inflation is driven by commodities price ramping up because of increased economic activity or due to wage growth.
The current inflation spike has been driven by commodities price spikes.
This has weak foundation. The current spike in commodities has been driven by
- OIL – An OPEC agreement that is already showing signs of ending in crumble (as per usual OPEC) plus the usual shale oil issue
- A commodities price turnaround driven by Chinese policies (cutting a very long story short, falling commodities price in 2012 created a drop in Chinese prices that spurred the world to buy more Chinese product. Commodities prices stabilized last year and so inflation started to appear in China in August 2016 (before Trump!).
The hiccup is that without wage pressure the buyer will not be able to buy the more expensive products and inflation will fall again.
Now let’s look at wage pressure…the real culprit of inflation.
Around the world there is no sign of wage pressure from Europe, to Japan and to Australia. China has a bit of inflation, but driven by the factors mentioned before – so demand driven.
In US there is the start of real wage pressure and it will increase if at least part of the Trump policies pass.
So we could find again in a world where the Central Banks policies diverge.
The last time it happened was December 2015, when we had the January 16 crisis in China and Italian banking crisis.
So your view on inflation is the most important point as the market will find the weak spot of the moment and hit it (it could be even an Australian real estate issue).
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