May, 2021 - 13 min read
Budget 2021-22 - Red is the new black
US headline inflation jumped by 0.8% m/m in April, four times the consensus forecast. This was the biggest forecast miss for inflation in over two decades. Should markets be worried? We think not: inflation is a multi-year process by which ongoing capacity utilisation eventually delivers a sustained excess of aggregate demand over aggregate supply. In turn, the backdrop for this dynamic is a multi-year period of strong economic and earnings growth. All else equal, this is an environment which suggests equity returns should out-pace those of bonds, even if the degree of out-performance is more modest in coming quarters.
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