Food hoarding and government spending all point to inflation - but don't count on it coming through, says AXA IM

Gilles Moëc, Group Chief Economist at AXA Investment Managers, considers the impact of the coronavirus crisis on consumer prices…

“While the focus remains on the policy response, other questions still need to be addressed, such as the impact on consumer prices of the current crisis. The current supply-side shock takes the form of an extreme decline in capacity utilisation, while not much of the existing capacity is destroyed. This suggests inflation should remain subdued when demand starts normalising.

“During the lockdown there may be sharp price increases for some items which are highly in demand, while some businesses in crucial sectors may have to hike wages to reward their staff risk-taking. Food hoarding – which may push up prices – will at some point collide with maximum stocking capacity at home. Then, home de-stocking should provide respite for shop re-stocking.
“The fiscal measures everywhere aim at replacing lost income or ensuring there is no lasting decline in production capacity. That cannot be inflationary. The monetary stimulus works by making the fiscal support financially sustainable. The hike in public debt will be permanent and sustainability will still need to be protected. This calls for prolonged accommodative monetary policy. Besides, demand may well be “shell-shocked” for a long while after the lockdowns are over.”