Analysts at Nomura explained that so long as governments pursue conventional fiscal policies, global inflation is unlikely to move very much, either on the upside or the downside, and instead to trend sideways.
“We think that even in the US, where president-elect Trump has said he will adopt highly expansionary fiscal policies, the need for Congressional support means that such policies are unlikely to be adopted without some modification, which seems to us a reasonable main scenario.
In the event that state capitalism gains more ground around the world, we see a need to add a risk scenario where “unconventional” fiscal policies lead to higher inflation. Although digital technology has permeated the economy and helped more than ever to keep price rises in check, whether or not prices rise is likely to depend on the extent to which the output gap narrows.
In view of the dollar’s appreciation since Donald Trump won the US presidential election, our impression is that the market does not see his prospective policies as all that “unconventional”. However, if that risk does emerge, readers should be prepared for long-term interest rates to rise and for the dollar to weaken as confidence in the currency declines.”