Financial markets have spent much of 2021 to date obsessing about building inflationary pressures, the consequence of a slow emergence from lockdown across developed Western economies. A “perceived” inflationary threat has driven sovereign
bond market break even rates higher and nominal bond yields, especially longer dated government bond yields, have risen from 2020 lows. All fine, except that there is no inflation! Critical to the debate is the difference between, on the o ne hand, one off price adjustments and the impact of supply chain disruption and on the other hand, a steady and persistent increase in wages and costs (that which economic textbooks describe as true inflation).
