The writer is chairman of Fulcrum Asset Management
It is already obvious that the initial impact of the Covid-19 economic crisis will be strongly disinflationary. Prices have fallen sharply in sectors that have been most affected by the lockdowns, including restaurants, hotels, airlines and housing. Furthermore, the past week has seen an extraordinary dip into negative territory for oil prices, especially at the front end of energy markets.
Headline US inflation will, therefore, fall markedly below the Federal Reserve’s 2 per cent target, while the eurozone and Japan will record negative inflation in a matter of months. That, however, is far from the end of the story.
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