Inflation is still the key focus in the market right now


The inflation debate is one that is going to set the tone for all asset classes going into next year and expect developments to price pressures to also help shape how things are going to be like in the market in the year ahead.

The most important part in all of this is how it is going to impact monetary policy outlook. But for now though, don't expect any immediate answers.

The market seems convinced that inflation is going to be here to stay or at least it is reflecting sentiment that inflation is going to be more sticky than what central banks are suggesting going into next year.

The ECB is among the leading figureheads when it comes to pushing the transitory narrative and they will be meeting next week.

I don't expect a change of tone by the central bank as they will try to distract the market focus with the winding down of its PEPP purchases going into March next year.

However, as inflation pressures remain elevated in the euro area, expect that to slowly chip away at their transitory narrative over time. They might not have the right tools to deal with it but at some point, they will have to acknowledge the risks.

The BOJ also meets next week and they are also not in a spot to really do anything about the situation, not that Japan is dealing with as high inflation pressures as elsewhere - which probably says more about how bad things are in the bigger picture.

Besides that, the BOC will also meet next Wednesday and there is pressure on the inflation front to start acknowledging the potential need for rate hikes in 1H 2022. Adam shared his thoughts on that yesterday here.