Coronavirus legacy will be weak global inflation: economists

The coronavirus pandemic is more likely to leave a legacy of weak or falling prices for goods and services than to trigger higher global inflation, according to a majority of over 160 economists polled by Reuters.

The finding underlines how early fears disruption to supply chains would lead to price hikes have since been overtaken by a consensus that the real problem is a deep slump in demand as the crisis hits millions of livelihoods.

Beyond being a symptom of recession, weak price growth or outright deflation also creates more headaches for the world’s biggest central banks, many of whom have for years failed to reach official inflation targets.

Over 70 per cent of more than 160 economists from Asia to Europe to the Americas in the latest poll said the bigger threat once the pandemic is under control would be lower prices. That proportion was roughly evenly spread by region as well.

“Once the pandemic subsides, disinflation is the bigger worry as the pandemic is currently the main progenitor of supply friction,” said Robert Carnell, ING’S chief economist for Asia-pacific. “Any inflation spikes should be temporary and give way to lower inflation or a lower price level after their initial impact.”

That has not stopped some investors hedging against the risk unprecedented amounts of monetary and fiscal stimulus will eventually start to produce price bubbles, prompting them to buy gold, inflation-linked bonds or other assets expected to at least hold their value.

Beyond the fact the virus continues to spread in some parts of the world and fears persist of a second wave later this year, part of the uncertainty is due to the global pandemic lockdowns being unparalleled in their effect on economies.

A separate Reuters poll showed the global economy is in a deep recession with the rebound expected to be slow and long. The outlook has worsened further or at best stayed the same over the past month, according to nearly all the economists surveyed, despite steady re-openings of many economies from lockdowns.