Analysts at Natixis expect a normalisation of inflation in 2021 but not deflation due to the recovery in activity and the fall in inventories; the upswing in commodity prices; companies' determination to improve their profit margins and the fact that the new health measures will be maintained at least for part of the year.
Key quotes
“It is normal for inflation to be low in 2020 given the rise in unemployment and the slowdown in wages; the rise in inventories, visible in the fall in the stock component of the PMIs and the fall in commodity prices.”
“The causes of normalisation of inflation are the recovery of activity and the normalisation of inventories; the upswing in commodity prices from the low point in 2020; the fact that the new COVID-related health standards will remain in effect, at least for part of 2021 and, above all, companies' determination to improve their profit margins. In the second quarter of 2020, unit labour costs rose sharply. This was due, as is normal in a recession, to weak activity.”
“Central banks will not respond to the rise in inflation. The reason is that their new strategy is to accept inflation above the inflation target to compensate for the fact that it has been below the target. Financial markets have clearly understood this new central bank behaviour, which explains why the upswing in expected inflation is not having any impact on long-term interest rates.”
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