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Below are Views On Debt Market Observer - The Monetary Transition, November 2021 by Pankaj Pathak, Fund Manager-Fixed Income, Quantum Mutual Fund

Inflation has been one of the biggest talking points globally in 2021. Rapidly rising commodity prices and acute supply chain disruption caused by the pandemic pushed up inflation to levels not seen for a very long time.

In the US, consumer price inflation jumped to 6.2% in October 2021, the highest print in over 30 years. In the Euro zone, CPI inflation surged to 13 years high at 4.1% in October 2021. Other Advanced and Emerging economies too witnessed an abnormal surge in inflation in the past few months.

Chart – I: Broad-based rise in Inflation

As per the IMF, “headline inflation is projected to peak in the final months of 2021, with inflation expected back to pre-pandemic levels by mid-2022 for both advanced economies and emerging markets country groups, and with risks tilted to the upside.”

This is a near-consensus view that inflation will cool off from current levels in the coming 2-3 quarters as economies open up and the supply chain gets back on track. However, some expect it to remain above the so called ‘Neutral Rate of Inflation’ (rate of inflation at which demand and supply in an economy are in balance) for a longer period and require an immediate intervention by the policy makers to control its spiral.

Policy Shift

On the policy front, a distinct shift towards unwinding of pandemic stimulus is already taking hold. Many of the central banks have embarked on the path of reducing the crisis times liquidity and even hiking the interest rates.

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