Insight Article Desktop Banner
Global Multi-Asset Viewpoint
June 30, 2020

Stars Aligned for Higher Inflation

Insight Article Mobile Banner

Global Multi-Asset Viewpoint

Stars Aligned for Higher Inflation

Stars Aligned for Higher Inflation

Share Icon

June 30, 2020


The deep recession in the first half of this year has led to widespread expectations of significant and persistent disinflation. We estimate that the rates markets are pricing in approximately 1% core inflation on average over the next 10 years. While we agree that some disinflation in the near term is unavoidable, we think that the potential for inflation to accelerate over the next year or so is substantial. We expect core PCE to end 2021 closer to 2%, compared with 1.5% expected by consensus, and is likely to continue to rise further thereafter.

Thanks to massive and early fiscal and monetary stimulus measures, incomes are likely to remain resilient in most major economies despite a gigantic fall in output and employment. As lockdowns are relaxed and activity rebounds, we expect resilient aggregate demand, supported by resilient incomes, to be met with a shrunken supply as the labor market recovers more gradually. Economic policy activism, both fiscal and monetary, is likely to endure over the medium term in light of greater social and political acceptance. Deficit spending will necessitate some form of financial repression, with higher inflation likely being a major part of this.

Managing Director
Global Multi-Asset Team
Head of Global Multi-Asset Team
Global Multi-Asset Team

The views and opinions are those of the author as of the date of publication and are subject to change at any time due to market or economic conditions and may not necessarily come to pass. The views expressed do not reflect the opinions of all investment personnel at Morgan Stanley Investment Management (MSIM) or the views of the firm as a whole, and may not be reflected in all the strategies and products that the Firm offers.

This general communication, which is not impartial, is for informational and educational purposes only, not a recommendation. Information does not address financial objectives, situation or specific needs of individual investors.

Any charts and graphs provided are for illustrative purposes only. Any performance quoted represents past performance. Past performance does not guarantee future results. All investments involve risks, including the possible loss of principal.

Prior to making any investment decision, investors should carefully review the strategy’s / product’s relevant offering document. For the complete content and important disclosures, refer to the link above.


It is important that users read the Terms of Use before proceeding as it explains certain legal and regulatory restrictions applicable to the dissemination of information pertaining to Morgan Stanley Investment Management's investment products.

The services described on this website may not be available in all jurisdictions or to all persons. For further details, please see our Terms of Use.

Not FDIC Insured—Offer No Bank Guarantee—May Lose Value
Not Insured By Any Federal Government Agency—Not A Deposit

Subscriptions    •    Privacy & Cookies    •    Terms of Use

©  Morgan Stanley. All rights reserved.

Morgan Stanley Distribution, Inc. Member FINRA/SIPC.