(Bloomberg) — If inflation is the dog that didn’t bark in recent years despite massive central bank stimulus, a mere whine might prove enough to rattle investors.
That’s the warning of some economists who are starting to question whether financial markets are underestimating the threat of a pickup in prices among developed nations.
Morgan Stanley is already declaring that global inflation has reached a tipping point and is set to accelerate from close to zero at the start of this year. Pacific Investment Management Co. has recommended buying inflation-linked debt.
While few, if any, forecast a 1970s-style run-up or even a major breaching of the 2 percent rate most policy makers target, the idea is forming that the recent deflationary shock and subsequent period of low inflation have left investors complacent. An inflation blip may be enough to spook them.
“To go from say 0.5 percent to even 2 percent let alone 3 or 4 percent would be a massive change,” said Pippa Malmgren, founder of the London-based DRPM Group and a former adviser to U.S. President George W. Bush. “It would be serious event for the public and for markets.”
It would be a surprise for central bankers too. Although Federal Reserve Chair Janet Yellen and Bank of England Governor Mark Carney this week solidified plans to raise interest rates in the non-too distant future, they still say they will do so gradually when the time comes. British inflation even flat-lined in June and data today showed the U.S. consumer price index climbed 0.3 percent, the fifth consecutive month of gains.
Elsewhere, the Bank of Japan cut its inflation forecast, while data showed consumer prices in the euro area rose just 0.2 percent in June. The Bank of Canada went as far as to cut rates.